Dog Control Bill [HL]

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Second Reading

Moved By Lord Redesdale
	That the Bill be read a second time.

Lord Redesdale: My Lords, this Bill has been brought about with the support of a large number of groups involved with dogs and animal welfare. I particularly thank the Dangerous Dogs Act Study Group for its help in drafting and bringing forward the Bill. The group includes the Kennel Club, the Dogs Trust, police local authorities, vets, Battersea Dogs Home and Wood Green Animal Shelters. I am also grateful for the help of the RSPCA.
	The purpose of the Bill is to deal with the problem of what is often cited as one of the worst pieces of legislation to have been taken through Parliament for a very long time. The Minister will, I know, say that we should just carry on and that Defra has just given guidance, but I find Defra's guidance almost laughable due to its complexity and the fact that it compounds the problems of the Dangerous Dogs Act.
	It is not really surprising that the Dangerous Dogs Act has failed. During the Second Reading of the Bill on 25 June 1991, the noble Lord, Lord Richard, who I see is in his place, said:
	"We very much regret the fact that the Government have once again missed an opportunity to deal with the problem comprehensively and properly".—[Official Report, 25/6/91; col. 521.]
	Unfortunately, in the period since then, neither Government have taken any significant steps to deal with the problems associated with the Act.
	This Bill is intended to change the emphasis of the Dangerous Dogs Act, which was a piece of knee-jerk-reaction legislation to deal with pit bull terriers. Everyone who took part in it and spoke in the debates recognised that it was dealing with a current concern. It was meant to lead to the extinction of pit bull terriers as a breed in this country. Of course, if it had been successful, there would be no or only very elderly microchipped pit bull terriers alive today. However, research by the RSPCA shows that there are now more pit bull terriers in the country than there were when the Act was passed.
	One thing that arose from the introduction of pit bull terriers was organised fighting with dogs. Research being undertaken by the RSPCA shows that there has been an increase in the number of organised dog fights in the country, at which large amounts of money are bet. This is a real concern. The level of fighting has increased to hundreds of cases and, indeed, Birmingham is now seen as a hot spot for dog fighting. This is unfortunate, because the Dangerous Dogs Act was meant to lead to a reduction in dog fighting.
	The problem is that dog fighting became breed-specific to pit bull terriers. However, because it is extremely difficult to define a pit bull terrier, there have been a great number of cases in which officers have tried to say that a dog is a pit bull terrier and an enormous amount of legal confusion has ensued. Indeed, the cost implications of the legislation are quite severe. The cost to the Metropolitan Police last year of kennelling dogs that are considered to be pit bull terriers stood at £1.3 million, and that is just the kennelling cost and does not include policing or court fees.
	One reason why I believe that a new Bill is needed is that we should move away from looking at certain breeds of dog and deal with the root cause—that is, owners, who are responsible for dealing with their dogs. I know that this has caused a great deal of concern for those who own dogs. Indeed, Black Rod asked me on the way in whether his dog would be looked at under this legislation. My answer was of course no, because his dog is an extremely well behaved Labrador with which no one could have a problem. Funnily enough, in many countries that have introduced legislation relating to dangerous dogs, Labradors are included in the list of dogs considered to be dangerous because of the number of attacks that have taken place.
	However, the real issue is that the Dangerous Dogs Act has brought about a change in society. Many people now own Staffordshire bull terriers, which give the impression of being pit bull terriers, because they are seen as a status dog. They can be seen on many estates. It would be difficult to find a Peer who has not come across one of these dogs and found them quite intimidating while walking around London. I have to say that Staffordshire bull terriers, if treated properly and well controlled, are fantastic dogs to own. However, the problem is that people own them because they are seen as intimidating, and those are the very owners who cause the problem. I saw this recently on an estate in Kentish Town, where a gang of young lads had a Staffordshire bull terrier puppy and were treating it badly, trying to get it to growl at people. These dogs are being used for intimidation purposes and, because they become unsocialised, they become problem dogs and thus a problem for society.
	There is an open invitation from many dogs homes, including Battersea Dogs Home, for people to go down and see which dogs end up in the homes. There is a preponderance of such status dogs, because the owners cannot look after them. The dogs end up in places like Battersea and, as they have been desocialised, it is almost impossible to rehouse them, which leads to their eventual euthanasia.
	This is an animal welfare problem and a growing social problem. Intimidation by dogs is now seen as an anti-social behaviour issue. However, one can be arrested for owning a knife but not for owning a dog even though the dog may be used for exactly the same purpose. The clearest indication of that came when I discussed the issue with the Metropolitan Police, who have set up a status dog unit, comprising one sergeant and five PCs, to deal with the problem. The cost to taxpayers is considerable and is replicated throughout the country. The purpose of the Bill is to deal, in a more targeted way, with those who own dogs in a manner that leads them to being desocialised and used in that way.
	I shall go through each of the clauses in the Bill. We found it extremely difficulty to gain consensus on the drafting. The fact that many groups have signed up to the Bill, although with caveats on certain parts of the wording, shows how important it is to them.
	Clause 1 deals with responsibility for dogs. The purpose is to find out who is the owner of a dog. At the moment, we have a problem in discovering who is responsible for any nuisance dog that is picked up. This clause quite clearly ties it to one individual. Subsection (4) deals with those under 16 who own dogs. The parent or guardian of a 16 year-old is responsible for the conduct of that dog.
	Clause 2 deals with the control of dogs, which is the main aspect of the Bill. If a dog, on public or private property, is deemed to be aggressive, the clause puts the responsibility on the owner. The Dangerous Dogs Act deals with public areas, but there is also a major problem in private areas, especially as recent cases in which children have been attacked by dogs have often taken place within the home. The clause also deals with those involved in the breeding of fighting dogs and the ownership of dogs used for fighting.
	A controversial part of the Bill is Clause 2(e), which states that no person shall,
	"keep a dog that has attacked a person or another animal".
	I know that a number of people from the hunting fraternity have been concerned about that but, for any prosecution to take place, the case would have to be seen as a serious offence. I do not believe that such a case would get past the magistrates. The subject of this clause is covered by other legislation, so there is case law to deal with the issue.
	Clause 3 deals with control notices. One of the problems with the Dangerous Dogs Act is that it is extremely prescriptive: dogs that were considered to be pit bull terriers had to be taken away immediately and dealt with. That has led to vast numbers of court cases. In this instance, the control notices will enable officers and local authority representatives to sanction a number of remedial measures. Subsection (2) sets out certain steps:
	"(a) keeping the dog muzzled when in public;
	(b) keeping the dog on a lead when in public;
	(c) arranging for the dog to be neutered;
	(d) placing a microchip in the dog;
	(e) arranging for the dog to undergo training; and
	(f) arranging for the dog to be re-homed".
	Arranging for the dog to undergo training is extremely important because many of the dogs could lead happy and sociable lives if they underwent retraining. However, the owner would have to take responsibility for the training of the dog.
	Clause 4 deals with prosecution. An issue with prosecution is that many of the owners of status dogs would not keep them in the same way if they realised that by doing so, and by using them in an intimidatory fashion, they might face penalties. Not only can a fine or prison sentence be imposed, but one can also ensure that such people are disqualified, as in subsection (2)(b), from keeping a dog in the future. Subsection (2)(c) deals with removing the dog from the owner and ensuring that it is not within their jurisdiction. Stopping people from owning dogs if they have proved themselves to be irresponsible owners is an important measure in the Bill. There are caveats in subsection (3) because dogs, in certain situations, will act in an aggressive manner; paragraphs (a) to (d) deal with that.
	Clause 5 deals with powers to seize and destroy dogs and gives the police powers to take dogs out of circulation. The purpose of the Bill is not to specify that a large number of dogs should be seized and destroyed; it is to lead the police to deal with dogs that have been causing a problem.
	Clause 6 deals with repeals and will cause a great deal of controversy. This is a new dog control regime and the Bill repeals the Dogs Act 1871, the Dangerous Dogs Act 1991 and the Dangerous Dogs (Amendment) Act 1997. It will repeal the rulings against pit bull terriers. I am not a fan of pit bull terriers and do not believe that they have any place as pets. I remember speaking, as defence spokesman, against the war in Iraq and being called an apologist for Saddam Hussein. I am not supporting pit bull terriers, but the problem is that we have focused on a type of dog that is almost impossible to specify. The Minister should perhaps read out annexe 2 of the Defra guidance. It takes about 10 minutes to read and you have to be a Crufts show judge to be able to specify what a pit bull terrier is.
	We should not be specifying a particular type of dog because other dogs have been brought in to act as fighting dogs. While we have been focusing on pit bull terriers, in the past few years other dogs have started to be used in fighting. They include Cane Corsos, an Italian-type mastiff, Presa Canarios, which were originally bred for fighting in the Canary Islands, Bully Kuttas, dogs bred for fighting originally from Pakistan, and Japanese Akitas. Unfortunately, Rottweilers and German shepherds are also quite popular in dog fighting. We have focused on pit bull terriers—indeed, the Dangerous Dogs Act was passed because of an incident with a pit bull terrier—but we should not underestimate how dangerous dogs that are bred for fighting are.

Lord Marlesford: My Lords, is it possible to identify a breed of dog by DNA?

Lord Redesdale: My Lords, that is a difficult question. If the noble Lord wishes to become an expert on this issue, he should look at the numerous court cases in which people have tried to define a pit bull terrier. It is not possible to do it by DNA because pit bull terriers are a cross-breed. You could conceivably have a pit chihuahua, if those two types of dog were crossed, but that is a different point, although I was thinking that it would make those handbag dogs quite dangerous. The issue is not along those lines, but the noble Lord's question goes to the heart of what we are dealing with. It is almost impossible to check on pit bull terriers. A vast amount of money has been spent on experts who have tried to deal with this.
	The problem that the Bill seeks to address is an animal welfare one. I hope that this issue will be dealt with by a Government soon enough because in a time of recession, when we are trying to save money at every stage, it cannot be a good use of public resources for the Metropolitan Police to spend £1.3 million just on kennelling. I beg to move.

The Earl of Shrewsbury: My Lords, I declare an interest as a follower of field sports and as an owner of working dogs. This is a brief Bill, and I shall be pretty brief in my comments. My concerns come from the perspectives of farmers, shooters, gamekeepers, land managers and ordinary dog owners. I congratulate the noble Lord, Lord Redesdale, on this dog's breakfast of a Bill, but any legislation that repeals and replaces the Dangerous Dogs Acts must be worth while and an improvement on the current situation. I have received a brief from the RSPCA, whose concerns relate mainly to dog fighting, a quite disgusting activity, and the use of aggressive-type dogs as status symbols, mainly by the criminally inclined and usually in urban areas. I share those concerns.
	However, the Bill is badly drafted and requires substantial amendment. The bona fide dog owner, together with many groups of people who own and use working dogs, will be seriously affected by the Bill. To begin with, there is a lack of definition in Clause 4(3)(d) about what is a service dog. I presume it is a dog that has been trained for a specific purpose, such a police dog or a sniffer dog or for other purposes. Does the term include guide dogs for the blind? Does it include gun dogs that have been specifically trained to flush and retrieve game? Does it include terriers used to control vermin? The Bill is unclear on this. Indeed, is Black Rod's dog a service dog? If not, it probably should be.
	Clause 2 sets out the principal offences under the Bill. Clause 2(b) states that no person shall,
	"encourage a dog to be aggressive or to intimidate people or other animals".
	Therefore, if I am using a dog, such as a terrier, to flush or hunt a rabbit, I am according to the Bill using a dog to intimidate other animals. That clearly cannot be right. If I am using a dog to kill rats or other vermin, I am similarly caught by the Bill. Would I be guilty of the offence of keeping a dog that has attacked another animal because the Bill states that a dog,
	"shall be regarded as having been in an attack if it has bitten, mauled or injured a person or another animal"?
	There are many such scenarios where I could be guilty of an offence and my dog could be seized and destroyed. The Bill needs a great deal of clarification. I am sure that it was not intended to incorporate legitimate and lawful activities within its scope, but it is far too widely drawn. It also opens the door to malicious private prosecutions from quarters that might disapprove of a certain lawful activity. That is totally unacceptable.

Lord Tyler: My Lords, I am delighted to welcome the Bill on behalf of my colleagues. We congratulate our noble friend Lord Redesdale not only on bringing forward the Bill at this topical time but on the way in which he has managed to bring together an amazing collection of people. Many of us will have experienced some of those who take an interest in these issues. We should warmly congratulate our noble friend on gathering them all together and achieving some sort of consensus. While I understand the points made by the noble Earl, Lord Shrewsbury, and they will need to be addressed when the Bill is in Committee, it is important that we should be having this debate at this stage because there is considerable concern about the inadequacy of the present legislation.
	Reference has been made to Black Rod's black Labrador, Sugar. This is a good opportunity to say that not only will we miss Black Rod in the House in a few days' time, but we will also miss Sugar. As an extremely well behaved dog with, obviously, an extremely responsible owner, she is a model for this legislation because the Bill is not about breed, but about behaviour. The sad thing about the Dangerous Dogs Act 1991 was that it concentrated almost entirely on a breed-specific approach to legislation rather than on the behaviour of the dog or its owner.
	As my noble friend said, the Dangerous Dog Act 1991 is cited by political students, not just in this country, but all over the world as a classic case of the danger of a knee-jerk response to events producing a law that seeks to remedy a situation at speed. Legislate in haste, repent at leisure. As my noble friend also emphasised, the emphasis in that Act was entirely on breed rather than behaviour. Clearly, that should not be the basis for such legislation.
	I cannot claim a particular interest; I am not a dog owner; but I have been a victim. I remember walking along the tow-path of a canal in north London some years ago and suddenly being attacked from behind by two Rottweilers, who took a large chunk out of my suit—it was quite a good suit, too; not this suit I hasten to say—but, more seriously for me, quite a large chunk out of the back of my leg. The significant point was that almost immediately the dogs were called back by their owner but owner and dogs disappeared without trace in a matter of seconds, so there was no way that I could achieve any remedy or report the incident to any good effect.
	My other interest is that when I was a constituency Member of Parliament, two ladies in Newquay in my constituency of North Cornwall were extremely anxious about mistaken identity in the control of dogs. I notice from my list of correspondence that I corresponded with about 20 authorities, including authorities in Germany because there was a case in Germany, but also with our Foreign Secretary. In that case, Staffordshire bull terriers were the victims of a case of canine mistaken identity. It was assumed that all bull terriers were much the same, which of course is absolutely not true. As my noble friend said, the problem with breed-specific legislation is that it is extremely difficult to define particular breeds precisely, because there is a lot of cross-breeding.
	There had been a case in Germany where a Staffordshire terrier had apparently been responsible for an attack on a small child, but the Staffordshire bull terrier in that case was of the American breed, quite different to anything bred in this country. The German authorities understandably made a silly mistake: how were they to know? When it was suggested that that definition should also be applied in this country, we had to make it clear that the British version of the breed is much lighter and cannot be trained to be as aggressive as the fighting dogs that the Americans tend to favour.
	Breed-specific law is bad law; it simply does not work. There has been greater recognition over the years that the basis on which the 1991 Act was set was a most ineffective and inappropriate way to base any legislation. It happens that the Staffordshire bull terrier as bred in the United Kingdom is among the most reliable with children. Out of 170 breeds registered with the Kennel Club, it is one of the only two especially noted to be safe with small children. The Kennel Club, with which I also held discussions then and now, is absolutely determined that there should be an improvement in the law. That is why the Bill is particularly topical and relevant today.
	The problem with the 1991 Act, even as amended in 1997, is that there is still an improper emphasis on breed and insufficient emphasis on behaviour—behaviour of both dog and owner—hence the relevance and attraction of my noble friend's Bill. There is also far too much emphasis in that legislation on action post-problem and not nearly enough on preventive action. My noble friend's Bill has great attractions in that respect, too. The previous legislation has unfortunately cost vital resources for the police which could be put to much better use. It contains no power of seizure in advance of a problem that is obviously about to occur. There are also other considerable problems with that legislation.
	The basic attraction and strength of my noble friend's Bill is that it is not breed-specific. I know that the Kennel Club, among all the organisations to which my noble friend referred, welcomes the Bill on that basis. The 1991 Act has proved unworkable. It has not dealt with the problems identified then, and it has certainly not met the needs of either dog owners or those who may be at risk from irresponsible breeding of fighting dogs. Difficulties have occurred because of the lack of effective definition.
	The emphasis on the owner, the person who is in control, is critical to my noble friend's Bill. That is surely a huge improvement on the previous legislation. Those of us who have owned dogs in the past, and those of us who have witnessed how dogs are controlled and trained, must surely recognise that it is the human being who should carry responsibility, rather than us relying on the definition of a particular breed of dog. Instead of banning specific breeds of dogs, the dog's behaviour, the behaviour of the owner and the behaviour of those who have responsibility for its training must surely be the central concern of any effective legislation in this field.
	I very much look forward to Committee sittings on the Bill, when we can deal with any problems of definition that may still need resolution. In the mean time, I warmly welcome the Bill, and I am very grateful to my noble friend.

Earl Cathcart: My Lords, at the outset, I should declare that I am a dog owner and either am or have been a member of the RSPCA and the Countryside Alliance. I congratulate the noble Lord, Lord Redesdale, on slipping his leash this morning and bringing the Bill to the House. His intentions must be applauded and I agree with much of what he says.
	I start with the existing legislation. The Dogs Act 1871 allows for a civil remedy when a criminal offence has not been committed. One advantage of that Act is that it can be applied everywhere—on private property, not just in public places. The Dangerous Dogs Act 1991 was hastily introduced following two horrific incidents of attacks on small children. If I remember correctly, one child died. Prior to that Act, there were no criminal offences to protect people from attacks or fear of injury from dogs. Section 1 of the Act prohibits the ownership of certain types of dogs and specifically names four breeds, the pit bull and the toser among them. It is important to remember that the intention behind the legislation was to protect people. One criticism of the Dangerous Dogs Act is that criminal proceedings can be brought only if an offence took place in a public place. However, it should be remembered that if the offence took place on private property, civil proceedings can still be brought under the Dogs Act 1871.
	One problem with the Dangerous Dogs Act is that of unintended consequences, the way in which the wording of the Act has been interpreted so widely. Section 1 deals with the type of breed or breed types that might be dangerous or appear to have dangerous characteristics. Obviously, a great deal of ambiguity and subjectivity can creep in—and indeed has. If the dog fits the type, it can be seized and/or destroyed. As the noble Lord, Lord Redesdale, said, that has led to thousands of dogs being seized based on someone's opinion. Banning a type of dog breed is impossible to get right. Without change, dogs will continue to be seized, owners persecuted and dogs registered as dangerous based solely on their looks. We certainly would not arrest humans based solely on their looks, so why dogs? Surely a dog should be judged on its temperament, its disposition and its behaviour.
	The Dangerous Dogs Act has also been criticised because there is no appeal system for owners to regain their dog. The Bill does not address that. With the best of intentions, the Dangerous Dogs Act is not working as intended. Since that Act, I understand that dog attacks have not diminished. If anything, they have increased. Thousands of dogs have been seized or destroyed because of their looks, not their behaviour, and at a cost of millions of pounds and to the distress of thousands of families. There is a need to put something more concrete in its place, so I welcome the introduction of this Bill, which puts the onus on the owner, or rather the irresponsible owner, rather than on what a dog looks like. It is essential that the Bill achieves what is intended, that the wording is not open to a broad interpretation, and that there are no unintended consequences as a result of the Dangerous Dogs Act.
	With this in mind, I want to discuss various parts of the Bill to seek clarification. At this stage, I congratulate my noble friend Lord Shrewsbury on his excellent speech. His points were well made. To some extent, he has stolen my thunder. Clause 1(4) says that,
	"a person shall be treated as responsible for any dog for which a person under the age of 16 years in their care and control is responsible".
	If a 15 year-old meets a friend in the high street, who asks him to hold on to his dog while he whips into the stop to buy a packet of fags or whatever, the dog then slips its leash and attacks a passer-by, does the clause mean that the 15 year-old's parents are treated as responsible, even though they were nowhere near the scene, or have I misinterpreted the meaning?
	Clause 2(a) and (c) seem to be fairly straightforward, but Clause 2(b) says:
	"No person shall ... encourage a dog to be aggressive or to intimidate people or other animals".
	On the question of intimidating people, if someone makes a house call—they might be a postman—and if the door is open and three Chihuahuas rush out yapping, this might be considered rather cute. However, if three Alsatians rush out barking, they might be seen as aggressive. By allowing the dogs to rush out, it could be argued that the owner was encouraging their behaviour and would therefore fall foul of this Bill, even though, in my example, neither the Chihuahuas nor the Alsatians caused any actual harm.
	On the question of being aggressive or intimidating other animals, this seems to be a minefield of unintended consequences. First, if a dog chases a rabbit, a cat, a rat or indeed a grey squirrel, is the dog being aggressive or intimidating towards other animals? Under Clause 2(b), the answer will probably be yes. However, no harm has been done and I really cannot believe that it is the intention of the noble Lord, Lord Redesdale, that the dog and the owner in these circumstances should become criminals. I am tempted to say, "For goodness' sake, let the dog chase the rabbit".
	Secondly, what if the dog was kept specifically to kill rats and mice? The owner and the dog would most certainly fall foul of Clause 7(4) in that,
	"a dog shall be regarded as having been in an attack if it has bitten, mauled or injured ... another animal".
	It seems that it is all right for a cat to kill a mouse or a rat, but not for a dog. What about dogs that are used to flush out game or vermin? To do so requires intimidating the game and vermin, otherwise they would not flush them out. What about sheep dogs moving sheep? The sheep would not move unless there was an element of intimidation, but anyone who has watched "One Man and His Dog" will know that no harm comes to the sheep.
	Clause 2(d) says:
	"No person shall ... keep a dog that has been used for fighting".
	Does this mean that it is an offence for a person to give a good home to any dog that has been involved in a dog fight? What is a dog fight? Clearly, two dogs scrapping in a back alley over a bone would fall foul of this Bill, but I do not believe that that is the sort of dog fight which the noble Lord envisages. Surely he means organised dog fights, which I believe is covered under the Animal Welfare Act 2006.
	What does the noble Lord, Lord Redesdale, mean by a service dog in Clause 4(3)? Does he mean a dog that has been specifically trained to carry out a particular function, for example a police crowd-control dog or a drug-detection dog? Does the clause include the sheep dog, the gun dog, the rat catcher: in other words, dogs that have been specifically trained to carry out a perfectly lawful activity? Clause 7(3) says that this does not include,
	"any case in which the dog has been used for a lawful purpose by a constable or a person in the service of the Crown",
	but this clause does not make it obvious what the definition of service dog is. If someone could prove that his dog was a service dog and it then attacked a child while off-duty, so to speak, it would seem, as subsection (4) is currently written, that being a service dog is a sufficient defence. That is surely not the noble Lord's intention.
	Clause 2(e) says:
	"No person shall ... keep a dog that has attacked a person or another animal".
	On the question of attacking a person, the noble Lord's intention is no doubt obvious, but let me give noble Lords a scenario. A child tries to take a bone away from her Chihuahua and the little pooch bites his hand. The child cries, is given a cuddle and is told that he should not do it again because it is a natural reaction for the dog to protect his bone, but what if the dog had been an Alsatian? Might that not be classed as an attack? It would under Clause 7(4); or is it a defence that the dog was provoked into an attack?
	Finally, Clause 6 repeals the existing dogs Acts. If we do this, there is a grave danger of throwing the baby out with the bath water. By repealing the Dogs Act 1871, people will lose the ability to bring civil proceedings against the owners of aggressive dogs. It might be desirable to do so if, for instance, the authorities refused to bring criminal proceedings for one reason or another. By repealing that Act, it would then become legal to import, own and breed the four named breeds that are currently in the Act. I am not sure that this would be seen as a desirable outcome.
	I am afraid that I may well have irritated the noble Lord by nitpicking my way through this Bill. I genuinely applaud his intention to bring changes to Section 1 of the Dangerous Dogs Act. It cannot be right that dogs are seized because of how they look rather than how they behave. The Bill quite rightly puts the onus of responsibility for a dog's behaviour fairly and squarely on the owner. One of the criticisms of the Dangerous Dogs Act is the unforeseen consequences due to the authorities' wide interpretation of the wording of the Act. We certainly do not want to make the same mistake with this Bill, whereby the natural, legitimate, and in some cases central activities of dogs throughout the country are criminalised because of the wording of the Bill and the wide interpretation of it.
	I have no doubt that we shall return to some of the issues raised today when the Bill goes through the House.

Lord Davies of Oldham: My Lords, like other speakers in the debate I appreciate this important Bill from the noble Lord, Lord Redesdale, which seeks to discuss issues which we all know are significant to the nation. He will have identified already from the contribution and pertinent questions from the noble Earl, Lord Cathcart, and those from the noble Earl, Lord Shrewsbury, who raised interesting points about service dogs, that he is in for quite a lively debate in Committee. The Government also have detailed reservations in certain areas but that, too, is a matter for Committee.
	I am sorry that I cannot give the noble Lord, Lord Redesdale, a great deal of comfort but the Government's problem is that we are not sure whether this Bill is in principle the way to tackle the issues that it identifies. We just do not think that repeal of Section 1 of the Dangerous Dogs Act is the way to go. None of us who were in public life in 1991 could fail to recall the rapidity with which that legislation went through. Nor could we forget the nation's shock-horror at the pit bull attacks that were occurring or the nation's demand that action should be taken. The action was knee-jerk in the sense of immediacy of reaction. However, I do not think that the Act should be condemned as ineffective. The Government contend that the issues lie a great deal more in effective enforcement, an issue to which I shall turn in a moment, rather than in the nature of the legislation itself. We are therefore not convinced that the Bill is premised on an accurate consideration of how to tackle these issues.
	As the noble Lord will appreciate, even if an Act is subject to criticism, we should all be anxious about removing it if that might increase the risk to the public. Defra almost daily receives letters from the public about dangerous dogs and we are frequently pilloried in the press for not having tighter dog control laws. When reading what the public and the press say I am struck by the fact that there is a strong body of opinion that criticises the current breed-specific legislation on the basis that many more breeds should be added to the list. If we were to run a consultation on this issue, I do not have the slightest doubt that we would have additional lists of dogs that should come within the framework of existing legislation. Dogs such as the Akita and the Rottweiler obviously spring to mind.
	We are of course in regular contact with the police, and in 2007 we consulted every police force in England and Wales. Their view was that without the prohibition on the pit bull terrier-type of dog there would have been many more dog attacks in this country. The view of the vast majority of police officers is that pit bull terrier-type dogs are not suitable animals to be kept as pets unless they are kept under strictly controlled conditions and a court has assessed whether the dog poses any threat to public safety.
	It is often rightly said that any dog can attack someone. However, it would be irresponsible to pretend that some dogs are not far more capable of inflicting serious injuries when they attack than others. Some dogs have the physical and mental capacity to inflict horrific and sometimes fatal attacks. It is no surprise that people who are interested in dog fighting—a practice which has been condemned by every contributor to this debate—concentrate on certain breeds of dog. Dog fighting is a despicable activity. The issue is that the pit bull was used primarily for and bred for that purpose. There is a danger that breeds in other parts of the world could be brought to the United Kingdom and would present similar threats. But we have to ask ourselves why these people tend towards only one type of dog.
	I know that pit bulls can be cross-bred with other dogs. The law is effective in that respect. It covers any dog that has the characteristics of a pit bull. If a dog is the offspring of a pit bull and another type of dog, it is likely to have the characteristics of a pit bull and be caught by the Act. It is not the case, as is sometimes suggested, that breeding development renders the Act ineffective and nugatory. It is the view of others, including the RSPCA, that the Act has been successful in preventing three specific types of dog with the characteristics of fighting dogs from being introduced into this country—the Japanese tosa, the Dogo Argentino and the Fila Brasileiro. These dogs are not suitable for general pet ownership and we are protected against their import.
	The Bill proposes to replace the prohibition of types of dog with the characteristics of fighting dogs with a ban on breeding dogs for fighting or keeping a dog that has been used for fighting. The Dangerous Dogs Act already makes it an offence to breed from any of the four types of dog that are prohibited. The pit bull terrier is still the dog most often used in dog fighting, so in effect it is already an offence to breed from the majority of fighting dogs. I therefore do not think that current legislation is ineffective. We also recently strengthened the law on animal fighting. Under the Animal Welfare Act 2006, it is now an offence to keep or train an animal for use in an animal fight. We are satisfied that the current law on fighting dogs is more than adequate. The current prohibition seeks to prevent the worst attacks by restricting the ownership of pit bull terriers. To take this restriction away would be a significant reduction in public protection. We are therefore not able to support the Bill, premised as it is on that significant stance.
	The Bill would make it an offence to own a dog that had attacked a person or another animal. However, courts already have the power to disqualify irresponsible owners from keeping dogs and the power to order the destruction of dogs that have attacked. We believe that the courts are in the best position to reach these judgments. I therefore come back to the point that our concern should be reflected in effective action under existing law rather than rethinking and redrafting the law, which is what the noble Lord seeks to do.
	The noble Lord's second major theme is the introduction of control notices. We are not aware that any of the control measures suggested in the Bill are not already readily available under the Dogs Act 1871 or the Dangerous Dogs Act 1991. If the noble Lord is concerned about enforcement then I share that concern. We need to improve enforcement and ensure that police officers are well acquainted with the law. Every police force should have a specialist on dog law who is able to advise other officers on enforcement and to ensure that the force does its job effectively. We should also make the public aware of just where the law stands so that we inhibit the dangers of dogs becoming a problem for the public.
	Under the current law it is only a criminal offence to allow a dog to be dangerously out of control in a public place or in a private place where it is not allowed to be. But where the dog is allowed to be, it is of course the responsibility of the owner. I am concerned about the Bill's provision—the noble Earls, Lord Cathcart and Lord Shrewsbury, also referred to it—regarding private premises. To make the obvious point, Parliament does not want to create a situation where a house owner could be prosecuted if the household dog bites a burglar. One is all too well aware of the sharp public reaction that would occur if the law permitted that. We have to be extremely careful about such an eventuality if the law is not clear about the position of a dog in a private place where it is entitled to be.
	We are not convinced that changing the existing law in this area would help those who enforce the law or administer justice, or reduce the number of attacks that take place in domestic premises. However, I emphasise that my officials will keep this area under close review, and if necessary we will make changes to the law if we believe that it would reduce the number of distressing incidents that occur within a family context. However, in the worst instance—that is, the family pet savaging a baby—there would normally be horrendous consequences for the family and, as we have seen in previous cases, the courts would have to reach difficult judgments on whether to convict a family member when the family has often suffered from the dog going out of control.
	Under the Dogs Act 1871—which of course preceded the Dangerous Dogs Act by 120 years—a dog can be considered dangerous even if the only danger shown is to other dogs and not to humans. Under that Act, being dangerous reflects the dog's disposition and not its acts. In some cases an owner can be liable for any damage that a dog causes under the Animals Act 1971. We have substantial existing legislation which addresses itself to the issues against which the noble Lord suggests his Bill would provide additional defence for the public.
	The noble Lord mentioned the threat of gangs employing dogs as a weapon against the public or against other gangs, which can lead to disorder. This is an important issue. I can assure him that he has pressed us in an area where we share with him exactly the same anxiety. The Policing and Crime Bill, which at present is in Committee in the Commons, will have provision for an injunction to be made upon gangs to prevent gang members from being in charge of an animal in a public place if it can be established that it appears threatening to the public.
	Of course the Government share the noble Lord's anxiety with regard to the safety of the public and the effectiveness of the law. We will all enjoy an interesting Committee stage when we debate the Bill. However, the noble Lord will appreciate that the Government's concern leads us to press for the more effective operation of existing legislation—with the additional point I have made about gangs, where the law is to be changed—against a problem which the noble Lord is quite right to bring to the attention of the House.

Lord Redesdale: My Lords, I thank all noble Lords who have taken part in this short debate. In one respect, I am quite glad that, although the issue is high on the public agenda, the Bill is not in response to a specific attack. Too much legislation is enacted in that way and, of course, the original Act was the result of a specific attack. But we should not be under any misapprehension: there have been a large number of dog attacks over the past few years. These have had different causes and therefore need to be covered by legislation dealing with such issues.
	Let me deal with some of the questions that have been raised. The noble Earl, Lord Selborne, raised the issue—

The Earl of Shrewsbury: Shrewsbury.

Lord Redesdale: Shrewsbury. Indeed.

The Earl of Shrewsbury: Thank you.

Lord Redesdale: My Lords, I apologise to the noble Earl. The noble Earl raised the issue of the control of dogs falling under other legislation dealing with animals. I am quite prepared to drop that section from the Bill in Committee because it is covered in other legislation. I think that would satisfy many of the objections.
	Of course, the introduction of pack hounds to hunt squirrels is extremely important. I say that as a joke because, as everyone knows, I am a great slaughterer of grey squirrels. I do not advocate that of course. Mind you, it is an idea.
	The Bill seeks to deal with the issue of dogs being used—mostly in an urban context, although also in rural areas—as status dogs for intimidating young people. The noble Earl, Lord Cathcart, discussed the issue of intimidation. This has, I believe, been sorted out through case law in a large number of cases and would not be difficult for a court to understand. I thank him for his positive comments. I know that in another place his party has declared that it will repeal the Dangerous Dogs Act and introduce legislation along these lines. His comments will be very helpful in that purpose. The issue he raised about dogs being owned for use in fighting is covered by other legislation. I realised that, of course, but the Bill had gone forward by the time I had worked it out. I will be quite happy to take that section out of the Bill. Service dogs are covered by separate legislation. We have taken his concerns on that into consideration and, on reading the Bill more closely, we believe that they have been addressed. I hope that his party's support for the basis of the Bill, as expressed, will come forward at a future date.
	The Minister stated that the Government have a number of problems with the Bill and that, although it is helpful to discuss this issue, enough legislation already exists. I would counter that by saying that although I am a dog owner—not at present, but I have been in the past and have always dealt with dogs—this issue was raised with me by several organisations: the Metropolitan Police, the RSPCA, the Kennel Club, the Dogs Trust, Battersea Dogs Home and others involved in dogs. I find the Minister's protestation that there is adequate legislation at the moment, and that I should not think of repealing it because it could cause more problems, slightly difficult to reconcile with the fact that all those organisations, which have to deal with this issue on a day-to-day basis, are calling for reform and have been doing so for a long time. In fact, through the setting up of the Dangerous Dogs Study Group, most of them have looked at this issue, which has not been addressed. There are more pit bull terriers in the country than there were before; indeed, the problem with the argument he was making is that under the Dangerous Dogs Act, so long as pit bulls were neutered and microchipped, they could carry on, and over 1,000 of them did. It is not the dog per se that was the issue, but the control of it. I agree that there a number of dogs which you could say we should add to the list, but that just adds to many of the inherent problems.
	Obviously control orders exist, but as Clause 6 deals with repeal and would repeal those very measures, I had to reintroduce them. Rather than dealing with a patchwork of other pieces of legislation, the new legislation will make clear and understandable, for those enforcing it and for those who own and deal with dogs, what is acceptable and at which point they will be dealing with problems.
	The Minister talked about private property. There was a case recently where that was an issue: a little girl, who was being looked after by her grandmother, was mauled by a dog but it was her uncle who was charged, although I think he was charged only with possession of heroin rather than over the dogs. Certain dogs are treated as dangerous animals and used in an intimidatory fashion. You could also see them as a dangerous weapon, and of course if you had a gun that was used in the same way and was then involved in an accident there would be a prosecution for that.
	The Minister has talked about intimidation. Just about anyone who has walked around London or many other cities has their own personal stories of problems with a certain type of dog. No one would have difficulty with the sort of dogs that most dog owners own. Indeed, my mother's dog, which is a mongrel—or a Beverley whippet, as she likes to call it—is incredibly affectionate and talks to everyone and jumps up. That is not a form of intimidation. I think we are quite clear; many people who have walked around London delivering leaflets, especially on some of its estates, know exactly what type of dog we are talking about.
	I have an issue with the new legislation. The Minister says that it is not clear, but I believe that it is. It talks about who owns the dog and who is responsible for it. If a dog is used by a gang, which member of the gang is responsible for the ownership of the dog? The police would find that the 15 people in the gang said that it belonged to someone else's cousin's brother's uncle who happened to be away on a fishing holiday at the time. Gangs use these dogs, but one of the problems of prosecution is actually nailing ownership of a dangerous dog to an individual.
	The noble Earl, Lord Cathcart, talked about who would be responsible if someone were left in charge of the dog. The answer is the person who owned it. If it slipped its leash and went off and attacked someone, the reason it would do so is probably the way that it has been dealt with; it has been desocialised and will attack people. Many dogs slip their leash and do not attack people.
	There are changes to be made to the Bill. There has been enormous discussion within the groups about what is acceptable in it. I see the Minister smiling because I know he will have been through the same process on many occasions. After listening to the concerns raised, I plan to bring back some amendments. While I realise it is quite possible that, even after amending it, it might not lead to legislation without the Government's support, I hope—considering that the main opposition party has declared that it will be doing something about this, and that would be with our support—that some future legislation will bring about a change in the problem. As all the organisations have stated, it is a problem that has to be dealt with.
	Bill read a second time and committed to a Committee of the Whole House.

Companies' Remuneration Reports Bill [HL]

Main Bill Page
	Copy of the Bill

Second Reading

That the Bill be read a second time.
	 Moved By Lord Gavron

Lord Gavron: My Lords, I beg to move that this Bill be now read a second time. Although the idea of the Bill was originally suggested by me to the office at No. 10 in 1997, the current timing is entirely due to the noble Lord, Lord Taverne, whose name would be on it if more than one name were permitted. The noble Lord, Lord Tugendhat, was also willing to have his name on it. The Bill was therefore initiated by a representative from each of the three main parties. In addition, the most reverend Primate the Archbishop of Canterbury has written expressing his delight that we are introducing it; he is supportive of it and is sympathetic to its aims.
	The Bill was conceived well before the present crisis. It is not aimed only at the excessive earnings of the financial services in the City, although many of the most extreme abuses were there. It is intended to cover all public companies and will continue to be relevant when the present crisis is ancient history, which I am sure we are all looking forward to. It is a short and simple Bill, occupying barely a page and a half in its official form. It has a single purpose: to draw attention to the growing gap between the highest and lowest paid in our public companies.
	Many in this house may know that it was reported in the US investment magazine Alpha that in 2007 three American hedge-fund directors paid themselves around $3 billion each for one year's work. These were exceptionally clever people, and it was an exceptional opportunity for them. Still, though, $3,000 million each; enough to keep them and their descendants in extreme luxury for many generations. You might think that for these astonishing rewards these three must have made some great contribution to the good of the world—but no. They were simply betting on the collapse of the sub-prime market, making a fortune out of something that led ultimately to the misfortune of millions of others.
	You may also think that the excesses of the United States are remote from our lives, but that is not the case. Finance and financial services are now global. In the Financial Times on the 7th of this month it was reported in a survey by Napier Scott Search, a headhunter, that this year UK bankers' average pay had for the first time in three years dropped below the levels of Wall Street. In 2007 there were British institutions, banks, asset managers, insurance companies and pension funds queuing up to invest in the best American hedge funds. So it is far from impossible that Mrs Jones of Worthing finds that her pension has been diminished by the huge rewards of those three Americans—only slightly, but still diminished.
	To put these huge figures into context, I should point out that in April 2008 the average annual pay of the lowest 10 per cent of full-time workers in Britain was £13,624. Those on the current minimum wage of £5.73 an hour earn less than £12,000 for their year's work.
	The Bill is also inclusive of the managers and directors of our publicly quoted companies not involved in financial services. When, 12 years ago, I first conceived the idea of publicising the ratio between the highest and lowest remuneration in our public companies, a typical ratio in many companies would have been around 30; for example, if the lowest paid averaged £10,000 per annum, the highest paid were getting around £300,000. Perhaps naively, I thought 12 years ago that that gap was rather large. Today, we find instances where the ratio is 300. The lowest paid might get £20,000 per annum and the highest paid may be getting around £6 million. What is the relationship, you may ask, between the $3,000 million I mentioned earlier and the more modest £6 million to which I have just referred? It is precisely that. The $3,000 million makes the £6 million look modest. It would make £12 million, even £20 million, look modest. Partly because of this, the growth in the ratio over the past 12 years from around 30 to around 300 is likely to continue. In another 12 years, it might be 1,000, or even more.
	In the British Army, the ratio between a full general and a newly recruited soldier is 10:3. In the Royal Air Force, the ratio between an air chief marshal and an aircraftsman is 10:1. In the Royal Navy, the ratio of earnings between an admiral and an ordinary seaman is 10:2.
	It so happened that I spent the Easter weekend in France, where I was told by a French historian that French pirates in the 18th century had developed their own system of remuneration. The captain, who was usually also the owner of the ship, took a quarter of the booty. The rest was divided equally among the crew; the ratio was usually around 10:15. I hope that most noble Lords will agree that our generals, admirals and air chief marshals are in no way lesser men than our chief executives. As for the French pirate captains, they appear to have been moderate in their demands. Perhaps they had principles absent in some of those we are discussing today.
	At least one very distinguished politician has said that as long as the lowest paid are getting enough, why does it matter what the top people get? I would submit that it does matter. I think it is a disincentive for those at the bottom and in the middle. Why should they strive to improve productivity and to control costs when they see these excesses at the top? Why should they be content with inflation-linked pay increases when there are soaring increases above them? Can they really believe that their chief executive is worth 300 times what they are worth?
	I should point out that these highly paid directors are not entrepreneurs. A distinction must be made between entrepreneurs and professional managers. Entrepreneurs create wealth. They create companies and build them up, sometimes into great corporations and, in doing so, many gain huge fortunes. When they set out, they normally risk their house, their reputation, the security of their family—indeed, everything—to get started. In my book, they deserve a large share of the wealth they create. They get it only if their venture succeeds.
	Professional managers are a different breed. They rarely put their homes or families at risk. They opt for security, not adventure. They are usually intelligent, hardworking, natural leaders, high in integrity and good citizens, but it is often difficult to know if they are doing a good job. Big businesses are like big oil tankers: you apply the brakes and the effect is felt several miles—or years—later. They may be benefiting from the work of their predecessors or the vagaries of the market. What is certain is that they have shown the skills necessary to climb the ladder and be selected for the top job. These are not invariably the skills required to lead the company successfully. We have seen some spectacular failures of selection in the UK and the US in recent months.
	Dr Paul Woolley, ex-IMF, who founded GMO Woolley, a successful fund management firm, has created and paid for two research centres, one at the LSE and one at the University of Toulouse, in order to study capital market dysfunctionality. Dr Woolley does not decry the importance of financial services or the importance of top managers in the industry, but during his time in the City he saw the "croupier's take" rise by an alarming degree. The croupier's take is the expression used for the City fees and charges and the directors' earnings which are subtracted from the profits before the ordinary shareholders get paid. He says that the croupier's take now absorbs between 40 per cent and 80 per cent of what used to be the 5 per cent to 6 per cent real annual returns—real, that is, after inflation—made by long-term investments in stock markets. It absorbs between 40 per cent and 80 per cent of what used to be the returns.
	Dr Woolley's anxiety about what has been happening in recent years should be shared by all of us, particularly in view of the effect it is having on the savings and pensions of those on middle and lower incomes. They are the losers. The very highly paid directors and executives in the City and in industry are gaining disproportionate rewards at their expense, adding, among other things, to the already worrying deficits in so many company pension funds.
	The question is: should Mrs Jones in Worthing bet getting a lower pension so that Lord Jones can get an extra few million? Lord Jones may be very clever, he may be working very hard, but is he worth more than, say, £1 million a year? Are the extra millions he gets an excessive part of the croupier's take?
	Not very long ago Jack Dormand sat among us. Lord Dormand, a doughty fighter for justice, is now, sadly, no longer with us. Every year he stood and asked the relevant Minister what the Government were doing about the excessive remuneration of our top directors and executives. Every year, the relevant Minister would reply that it was not up to the Government but was the duty of shareholders to do something about it if, indeed, anything needed to be done. Last year my noble friend Lord Wedderburn, another doughty fighter, assumed Lord Dormand's mantle and asked the Question. He pointed out on 28 January last year that 1,445 directors had received more than £1 million in salary alone, never mind other forms of remuneration, in 2006-07. The noble Lord, Lord Razzall, backed him up.
	The Minister at the time—my noble friend who just happens to be called Lord Jones—answered that he did not want to see a sign over UK plc saying that people cannot aspire to the sky. We cannot quarrel with that, but how high is the sky? How high should it be?
	There is upward pressure on top earnings from many sources. The remuneration committees which are supposed to control them in fact apply some of this upward pressure. As my noble friend Lord Wedderburn said, those committees are composed mainly of non-executive directors from other companies. They all sit on each other's remuneration committees. They have no incentive to keep rewards down—on the contrary.
	Managers of public companies are the temporary caretakers of their investors' money—the shareholders' money. Who are the shareholders? They are actually all of us, represented by the large institutions, banks, pension funds, asset managers, insurance companies, which are all also headed by very highly paid directors. They are not likely to apply downward pressure, and very rarely do.
	So we have an imperfect market, a market in which there is upward pressure, from head-hunters, who are rewarded with a percentage of the salary of their appointee— no downward pressure there—and from compensation consultants, who tell all their clients that they should be in the top quartile and do not normally recommend reductions in directors' rewards. The point is that there is almost no downward pressure on directors' rewards, from anywhere.
	The Government have had a go at it. Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, which came into force in April 2008, is headed, "Quoted Companies: Directors' Remuneration Report" and contains a number of very sensible provisions to guide members of the remuneration committee in relating rewards to performance assessment and in wording their report. Surprisingly, it also states that if the director's entitlement is not subject to performance conditions, there must be an explanation of why that is the case. Can anyone imagine why a director should be rewarded for anything other than his performance?
	Further on in the regulations is a requirement for the pay and employment conditions of employees of the company to be taken into account in determining directors' remuneration. That is very good, but it amounts to no more than a polite nod in their direction.
	The schedule is full of excellent stuff and can do nothing but good in making the deliberations of the remuneration committee more professional and more considered. But sensible though it is, it does not solve the problem of the lack of downward pressure on directors' rewards.
	I do not suggest that our Bill will solve this problem. It is the reverse of a sledgehammer to crack a nut; it is barely a nutcracker. But it would, if law, add teeth to Schedule 8—not very sharp teeth, but teeth none the less. It might even show us that the more egalitarian companies are the best performers. Above all, it would provide useful information for shareholders, potential investors, customers, suppliers and potential recruits. It would provide one more element of the transparency that is so evidently desirable in our corporations. I beg to move.

Lord Tugendhat: My Lords, I congratulate the noble Lord, Lord Gavron, on introducing this Bill and I am delighted that he should have asked me to join him and the noble Lord, Lord Taverne, in promoting it. I am also glad that the noble Lord, Lord Davies, is on the Front Bench to answer for the Government and that the noble Lord, Lord Myners, is there, too. It is very rare for a Government in this country to contain people with the degree of business experience of those two noble Lords and I feel sure that, from their own experience, they will understand the importance of the principle that the noble Lord, Lord Gavron, is putting forward.
	The Bill is a practical suggestion, with no complex rules or box-ticking, for addressing the excessive remuneration that disfigures some sectors of our business. I am all in favour of high rewards for high achievers. Those who create great wealth for shareholders and the economy, as well as jobs for their fellow citizens, deserve to be highly rewarded for that. But those in control of companies should not abuse their position by taking too much for themselves out of a business; they should not create divisive feelings of distrust among those who see that they are taking disproportionate rewards; and they should not allow their judgments to be warped by the pursuit of short-term gain at the expense of long-term interests. Those are the issues that this modest measure is designed to rectify. Whether this Bill in its present form or an adaptation of it is taken forward, it would be very good if the Government could take up the cause.
	Many years ago, low rewards for British top management, in absolute and internationally comparative terms, did great harm to this country's economic performance. They acted as a disincentive, stifled initiative and encouraged emigration. I hope that we will see no return to those days. But now the problem is at the opposite end of the scale. Recent events in the banking industry, in which I have spent some years, show how bonus schemes and the life-transforming sums that they can yield have distorted judgments by encouraging a concentration on short-term gain to the jeopardy of long-term viability.
	This phenomenon has been most blatant in the financial services industry but by no means confined to it, as the noble Lord, Lord Gavron, pointed out. The problems that I have mentioned so far are only a part of the overall problem. The very high rewards that sometimes go to executives also go to their heads and can warp their judgment. For some, being paid like supermen leads them to believe that they are perhaps supermen—I think that all of us have seen that phenomenon in practice. For others, being paid very large amounts puts great pressure on them to justify to themselves the great rewards that they are seeking and can lead them into unwise actions. And then there is a third category, where people see the chance of fattening up a company so that it can be sold at the top of the market and yield them a great return so that they can then live happily ever after.
	All these reactions have been on display in recent years and have led to many ill advised takeovers. Sometimes, one has had supermen who, after initial successes in takeovers and acquisitions, get carried away and, like Napoleon, cannot stop until eventually they reach their Waterloo. Perhaps the most celebrated recent example of that is Sir Fred Goodwin at the Royal Bank of Scotland. However, not so very long ago, in another industry, a perhaps similar example was the noble Lord, Lord Simpson, at Marconi, the former GEC, where one saw a great company built up over many years by Lord Weinstock and then brought to its knees—although it would be truer to say "laid absolutely flat"—within a short time as a result of the phenomenon about which I am talking.
	These very large rewards and excessive packages can also serve to insulate their recipients from the world around them and from normal life. There have been some particularly spectacular examples of that in the recent past in the United States. Perhaps the most blatant in a way was John Thain of Merrill Lynch, with his $1 million makeover of his office. Another example was when the heads of the great motor companies in Detroit all flew in their corporate jets to Washington to beg for taxpayer handouts. Of course, Congressmen pointed out the inconsistency of that. Perhaps most tragic, and most far reaching of all, was the case of Dick Fuld at Lehman Brothers, a company for which I worked for a number of years.
	It is hard to lay down hard and fast rules about top executive pay. So much depends on the circumstances of a business and the role of individuals. Like the noble Lord, Lord Gavron, I would draw a clear distinction between, on the one hand, entrepreneurs whose own fortunes are at risk and who have created the companies that they manage and, on the other hand, those who have nothing at risk and are managing a company on behalf of others. I am aware, too, that of course some people fall some way between those two categories.
	The word "excessive" in this sphere is rather like the old conundrum about how to describe an elephant. It is very hard to do but you know it when you see it. The purpose of this Bill is to help us to see it—to draw back the veils that sometimes hide and camouflage excessive rewards so that these can be more clearly seen and more clearly judged. Other measures, such as the publication of salaries in the annual report and the votes that take place at annual general meetings, although they are not always to great effect, go in the same direction.
	As the noble Lord, Lord Gavron, says, this is a modest measure. It will not transform the situation but it will serve to bring about an improvement and make it easier to recognise abuse. It will put pressure on those who are taking too much out of the system to justify what they are doing—or put pressure on them not to do it. I believe that it will help to improve the whole climate of corporate activity in this country. It gives me very great pleasure to support the noble Lord, Lord Gavron, in conjunction with the noble Lord, Lord Taverne.

Lord Taverne: My Lords, first, let me say that the noble Lord, Lord Gavron, has done the spade work on this Bill. It is strongly supported by the noble Lord, Lord Tugendhat, and me, but he deserves the credit. Indeed, his impressive speech in introducing the Bill will, I hope, persuade the Government that it should have their enthusiastic support.
	I want to talk about inequality more generally. One of the main sources of inequality is the workplace and, in the past few years, the differences in pay between top executives and the average employee in industry have grown at a rate which is quite astonishing. I cite some figures from an important book, The Spirit Level, by Richard Wilkinson and Kate Pickett. The book says that boardroom pay in the FTSE 100 companies rose annually between 2003 and 2007, at a time when inflation was rarely above 2 per cent, by 16 per cent, 13 per cent, 28 per cent and in 2006-07 by 37 per cent. Average pay, including bonuses, for chief executive officers in the top companies a year ago was just under £2.7 million. In manufacturing as a whole, where top earnings are generally are not as high as in many financial companies, the best comparison suggests that the ratio between the pay of CEOs and the average employee is 16.1 times in Japan, 21.1 times in Sweden, 31.1 times in the UK and 44.1 times in the US.
	It is often argued that we should not be obsessed by inequalities and that what matters is creating wealth, because everyone benefits in the end, and that high pay for top executives improves corporate performance and thereby increases wealth, so we all benefit. This a fallacy, based on no evidence whatever. There is no evidence that I am aware of that performance is improved by greater inequalities, but there is a wealth of statistical evidence that greater inequalities make society more dysfunctional. Significant comparisons have and can be made between countries in the developed world. We can compare the rate of homicide, suicide, mental health problems and stress, teenage pregnancies and abortions, infant mortality, child violence, obesity, social mobility and numbers in prison. Another important criterion is trust between citizens. I am sure everyone will agree that these are not unreasonable tests by which to judge the effective functioning of a society.
	Unfortunately, in a short speech, I cannot give the detailed figures, which is a pity because they are devastating. Overall, the picture is clear: of 21 countries in the developed world, those with the lowest inequalities are Japan and the Scandinavian countries, and they come out top on pretty well every score in terms of health, social problems and the degree of trust between citizens. Countries with the greatest inequalities, led by the United States and Portugal and followed by the UK, come out worst. It can be argued that more equal societies, such as Japan and Scandinavian countries, are more homogeneous and this explains their social success. But, the authors of The Spirit Level and others have analysed the differences not only between countries but between various states within one country—for example, in the United States. This confirms the pattern between countries. The political scientist, Robert Putnam, has reached similar conclusions about inequality and dysfunctionality. In North Dakota, for example, where inequalities are relatively low, people who say they trust each other outnumber by over four to one those in Mississippi, where inequalities are high.
	The case is very strong indeed that great inequalities make society as a whole less contented and more dysfunctional. That is what this Bill is about; it should, to some extent help. It does not seek to legislate for limits on pay. That would be oppressive, anti-libertarian, counter-productive and impractical. It seeks to shame into a greater sense of responsibility those ineffective corporate remuneration committees, to which the noble Lord, Lord Gavron, referred, which are composed of other senior executives who stand to gain from hiking up the general level of executive pay. These committees have done a great disservice to British industry and our society as a whole. They should be exposed, and this Bill is a perfectly reasonable and practical measure. Who on earth can really argue against it? I hope, therefore, that the Government will give it their full support.

Lord Joffe: My Lords, I join other Peers in congratulating my noble friend Lord Gavron on introducing this topical debate and on his excellent speech in support of his Bill.
	It is clear from what has already been said that the remuneration packages of executive directors in the corporate world are astonishingly high. Deloitte's 2008 directors' remuneration report on the FTSE 250 companies shows that fixed annual salaries, plus pensions, of executive directors other than chief executives ranged from £293,000 to £935,000. Most people would think that those salaries were more than sufficient to generate maximum commitment by directors to produce outstanding results, but they would be far off the mark. To these salaries are normally added annual and longer-term bonuses, which for on-target performance typically range from 85 per cent to 270 per cent of basic salary, depending on the size of the company. These bonuses push up the average total remuneration of executive directors to between £561,000 and £3.4 million. For chief executives, the range is £963,000 to £5.3 million and, for superior performance, from £1.5 million to an incredible £10.9 million.
	Pity the Prime Minister who receives a modest £194,000 for running the whole country, Cabinet Ministers with their £142,000, the Cabinet Secretary and the head of the Civil Service with £235,000 and university vice-chancellors with an average £194,000, although one was recently awarded £500,000, which caused an outcry. A similar outcry arose in relation to chief executives of NHS hospitals, when one was awarded a remuneration package of £210,000, although the average was only £110,000. Chief executives of local authorities receive on average a little less than that.
	What then is the explanation for the vast gap between corporate directors and individuals with equal or even heavier responsibilities in other fields? Are corporate directors cleverer or more accomplished at their jobs? Do they work harder, do they carry more responsibility and are their jobs more difficult? The answer to all these questions is self-evident: it must be no. There is one obvious difference that explains these extravagant rewards, which is that, unlike the Prime Minister and others to whose salaries reference has been made, corporate directors fix their own salaries.
	It is argued by those in the corporate sector that their remuneration packages are market driven and that, unless they are paid these extravagant amounts, they will be tempted to go elsewhere. But where would they go? Who would want to employ them? Would most of our companies really be harmed if some of them did depart?
	It is a myth that there is a genuine market that drives corporate salaries. In practice, directors have created a false market. The higher they pitch their salaries, the more their counterparts in other companies increase their packages, and so the process goes on and the packages get higher. The policy director of the Work Foundation said:
	"It is an incredible closed shop and those are the dynamics operating in top directors pay. The increases are based on the myth of market forces, but this is actually the antithesis of market forces".
	The noble Lord, Lord Taverne, referred to the extraordinary increase in salaries of corporate directors. I found a smaller figure, which was only a 50 per cent increase, in the five years ending 2007-08, with the corresponding increase in average earnings of only about 20 per cent.
	In the current economic crisis, one might have expected that directors would be volunteering to reduce their salaries in the same way that some of their employees are being urged to agree to reductions in their earnings to save their jobs. Although some, to their credit, have volunteered to waive bonuses, this has been very much the exception. It is surprising how little regret has been expressed by directors at their own mistakes, particularly when due to their poor decisions they lay off staff. Indeed, far from there being a consideration of reductions in their remuneration, the views expressed in some of the remuneration reports are that even higher salaries are needed to compensate directors because of the great skills needed to recover from the setbacks created by the current economic crisis.
	Obviously, like everyone else, corporate directors are entitled to be fairly remunerated, but how can their excessive remuneration be controlled? The theory is that the remuneration committees with independent non-executive directors will exercise control over remuneration, but the question is how independent these non-executives are. As a chairman of a remuneration committee, according to Deloitte, one can earn an annual fee of £120,000. That is an attractive role for not a great deal of work. Innovatively, the very directors whose remuneration they have to determine appoint them. I recall being told many years ago by a board member of a major UK company that the chairman of the remuneration committee went to see the chairman of the company to advise him of the bonus that the committee had agreed to recommend for the year. The company chairman glowered at him and said that it was not enough. The remuneration committee chairman scuttled back to his committee to reconsider and had no difficulty in upping the bonus to the level considered reasonable by the company chairman.
	I do not suggest that this is what happens regularly, although the manner in which the board of the Royal Bank of Scotland whistled through the inflated pension arrangements for Sir Fred Goodwin does little to create confidence in the effectiveness of remuneration committees. Further, as has been pointed out, it is difficult to overlook the fact that most of the independent directors are directors of other companies and part of the same director market.
	Apart from remuneration committees, the other forms of control of executive directors' remuneration are said to be shareholders' rights to vote down recommendations on remuneration at AGMs. However, the main shareholders are the pension funds and other investment funds whose investment managers, being normally extremely well paid, do not have an impressive record in opposing recommendations on remuneration. The small shareholders can protest loudly but can seldom succeed in opposing extravagant pay awards.
	Accordingly, it really is necessary for government to take steps to curtail excessive remuneration. But that is easier said than done. While the Government have every right to lay down conditions curtailing excessive remuneration in companies that they are helping, in the same way as President Obama has done in the USA, it would be extremely difficult and probably harmful to seek to impose arbitrary maximum salaries on earnings.
	Against that background, the Bill introduced by my noble friend Lord Gavron is an important step in the right direction. A great deal more has to be done by government, but transparency on director rewards, which will emerge from the Bill, will act as some brake on corporate greed, put pressure on remuneration committees and provide the information for further action by government and pressure by shareholders. I enthusiastically support the Bill.
	In conclusion, I draw attention to the danger of using public pressure to reduce directors' bonuses, which could lead to the wrong position. Care needs to be taken that existing bonuses are not consolidated with basic salaries, as the result of that would be the worst of all worlds.

Lord Puttnam: My Lords, may I begin by apologising for my late arrival? I was given to understand that the Bill would be read at noon. I shall compensate by keeping my remarks short.
	Different people arrived in this House in different ways. In different ways, many of us have a great deal to thank our ancestors for. In my case, it is my father. He was the model on which I have tried to base my life. He used a particular word every day, and on many days he used it frequently. It is a word that we do not hear very much nowadays: "fair". My father, not unlike many of his generation, was able to reduce most extremely complicated issues to the notion of what was fair. Of course today, "fair" is all of a piece with "transparent".
	The Bill suggests that greater fairness and transparency should find their way into corporate reports. To me, this debate—and this historic House has seen many debates over the years—falls into the same category as the great debates of the 1870s on the employment of mill girls. We look back on that now and cannot imagine that we ever needed to debate whether young girls under the age of 14 should work a 12-hour day. Yet at the time, to challenge it was seen as revolutionary and extraordinary—an event that might, indeed, endanger the future economic capacity of the country.
	We are today discussing something that will happen. The issue is when. Do we have the courage and perspicacity to bring it forward now? Do we wait another five years, or 20 years, when people will find it difficult to understand why on earth we did not bring it in when it was first suggested in 2009? After all, these are not complicated issues.
	I picked an interesting fact out of the US Economic Policy Institute report. In 1965, US CEOs in major companies earned 24 times more than the average US worker. In 2007, they made 275 times more. That would not pass my dad's test of fairness, and I very much doubt that it would pass the test of anyone seriously thinking about it in the House this afternoon. Do we want to drift endlessly in that direction, or do we wish to say, "Enough"? Things have got out of kilter. If it requires a level of embarrassment for companies to look at and take note of the direction in which their own corporation is drifting, so be it. Again, I would argue that the time has come.
	This may not be a popular remark on my own Benches, but I have been extremely impressed by many of David Cameron's remarks about "caring Conservatism", and how he hopes that his Government, if and when they come to power, will take a different approach to these matters from that which has been traditional. I cannot for one moment believe that part and parcel of caring Conservatism involves a situation in which corporations are able either to hide or encourage a consistent expansion of the gap between the highest and lowest paid and in which the gap can get worse. It would not seem to be of a piece with everything that Mr Cameron has said about his notions of a fairer society. The Bill in its present form may not be perfect, but I hope that its broad thrust, and what is intended here, will be taken seriously.
	I should like to offer only one other piece of evidence. I declare an interest as president of UNICEF. Twice in the past two years, UNICEF has published a report card on the well-being of nations. We judge that by whether they are places in which young people will grow up and thrive. Britain's position improved slightly: we were 26th, at the bottom of the previous report; two weeks ago we came 23rd out of 29. I suggest that that is not a placing that any of us can be proud of or would wish to have. Your Lordships will not be surprised to know that all the usual suspects at the top of the list—Norway, Sweden, Finland, Denmark, Holland—have significantly smaller gaps between their highest and lowest paid, because they understand the ramifications of a fairer, better and more equitable society. I very much hope that I will live long enough to see our society and this country follow their examples, rather than careen off towards the quite dizzying and absurd situation that the Americans have allowed to happen over the past dozen years.

Lord Bradshaw: My Lords, I endorse what the noble Lord, Lord Puttnam, said about fairness. When I started my working life, I was motivated far more by what I could achieve than by how much I might earn. This situation has drifted. I fairly recently attended a sixth form meeting at a school and I was astounded by someone I spoke to who asked not what the job involved or what he could achieve or contribute but how much he could make. If people at the start of their careers are less interested in what they can give to society than in what they can take from it, then we have come to a pretty awful pass in how we conduct ourselves.
	I ask the noble Lord, Lord Gavron, if he is talking about the lowest level of employees or whether he considers the many contract staff and others who work for the company to be within the lowest 10 per cent. Many companies I know are employing people at pretty low wages. It is sometimes difficult to find out what they are paying or whether their employees are employed legally. In fact, many companies that depend on things like cleaning contracts and other service contracts are fishing around the very bottom of the market. What they pay people when they move production or services offshore is perhaps not within the scope of the Bill. However, many companies and company directors have made their large increases by treating those at the bottom very badly indeed.
	I will not detain your Lordships for long, but I have an anecdote that the managing director of TNT told me when I was working at a university some years ago. He said that one of the things that motivated him most was that when he drove on the motorway and his company's lorries passed him, he knew that the drivers were the best-paid drivers on the motorway. That reflected not only the fact that he was running a successful company but that the people in the company were participating in it. I know that these things are difficult, but they are extremely important.
	On non-executive directors and remuneration committees, I remember a lot of propaganda by an organisation called Pro Neg, which was trying to recruit people to become non-executive directors. One of the golden rules was that you should not be a non-executive director unless you could afford to resign. You had to tell the company when it was stepping over the limits. If a non-executive director is dependent on that company or a closely associated one for money, I am afraid that they fail at the first test.
	I wish the Bill well. I am glad that the noble Lord, Lord Gavron, has moved it, and I look forward to the Minister's reply.

Lord Giddens: My Lords, I also congratulate my noble friend Lord Gavron, and other noble Lords involved, on proposing the Bill. Like others who have spoken, I strongly endorse it.
	When I knew that I was going to speak in this debate, I looked at the writings of the guru of all management gurus, Peter Drucker, to see what he said about this, writing in the mid-1970s. It is pretty interesting. He said that opinion surveys taken at that time showed that the public thought that an appropriate earnings ratio between what he called the "blue-collar worker in the factory" and the "big boss" would be about 1:10 or 1:12. He went on to look at the actual situation of average salaries of employees compared to executives in large businesses in the US. He found that it was about the same ratio. That is quite amazing when you think about what has happened since. He endorsed this as an appropriate ratio for an effective capitalist system because of the solidarity that it inherently produced.
	As the noble Lord, Lord Taverne, has noted, this ratio has not changed very much in some industrial countries. My figure for Japan is slightly different from his, but it depends on how you calculate it. Most studies show that it is about 1:15 for large Japanese companies. In the United Kingdom, United States and some other countries today, the ratio, depending on how you measure it, is often 20 or 30 times that figure, which is an extraordinary change. The United Kingdom, United States and Australia show much steeper rises than elsewhere. It is easy to confirm these figures in a specific context. In the UK in 2007, top executives got average pay rises of 33 per cent while the typical worker got 3.7 per cent—a 10 times ratio just for a single year.
	The spiralling inequalities at the top of the corporate and financial worlds could perhaps be justified if it could be shown that they produced superior economic performance. I have done a lot of work on this, looking at the academic studies that exist, and the result is really surprising—namely that the evidence is really weak; what evidence there is tends to show the opposite of the claim; and that those companies where executives are paid very high salaries tend to underperform compared with others. One of the biggest studies was done in Australia. It compared the 20 worst performing companies in a given year with the 20 best performing companies measured by returns on equity. The executives in the 20 worst performers were paid about two and a half times the salaries of executives in the best performing companies. Therefore, the evidence is very weak and surprisingly thin on the ground, and what evidence there is tends to suggest that very high levels of executive remuneration are actively dysfunctional in terms of business success.
	Even this might not matter if there were not other downsides, but there are very serious downsides to the massive inequalities that we see in the financial sector and the wider sphere of business. I shall mention three points very briefly because others have referred to them. First, as my noble friend Lord Gavron pointed out, we know from many research studies that there is not a proper market for executive salaries at the top. The reasons for this have been explored in many studies, which go back 15 or so years and were largely ignored by policy makers, certainly until recently. As the noble Lord said, they show that the consultants who recommend executive pay are almost always chosen by the CEO. The CEO then packs the committee with his or her friends and colleagues. It is therefore not surprising that you get upward pressure on salaries, that "success" is rewarded and there are very few mechanisms for penalising failure. Secondly, many studies show that mechanisms such as golden parachutes and protected pension schemes mean that top executives are shielded from the risks they ask their employees to bear. The situation is the very opposite to that which Peter Drucker saw as so important for solidarity in business and the wider society. Thirdly, and more crucially, the structure of executive pay has helped to produce the short-termism, irresponsible risk-taking and indifference to systemic risk that are the origins of the current crisis.
	The Bill has been described by its initiator as a naming-and-shaming exercise. We know that not all individuals accept that they can be shamed. I would rather see the Bill as one step along the way in creating greater accountability at the top level in business and as part of a much larger task of creating a new model of responsible capitalism.

Lord Renton of Mount Harry: My Lords, I join others in congratulating the noble Lords, Lord Gavron and Lord Taverne, and my noble friend Lord Tugendhat on bringing this Bill forward. The one difference between those noble Lords and me is that I do not regard this as a very modest Bill. I think that it is a pretty bold Bill. I very much wonder what will happen next because this is only a step in a certain direction. As the noble Lord, Lord Gavron, said, it seems a modest step. However, how will it be taken forward when young people going to university are suddenly faced with the fact that reading economics in order to earn £1 million before they are 25 and £2 million before they are 30 is not the end of the world and that there are other, much better, things to work towards? The spirit of all that has been said today—I want to look forward rather than backwards—reminds me of the words of Omar Khayyam's Rubaiyat, which says:
	"Indeed the idols I have loved so long have done my credit in men's eye much wrongHave drown'd my honour in a shallow cup and sold my reputation for a song".
	The difference is that the reputation was sold not for a song but for a great deal. But are we not now looking at what happens next? What will young people going to university be inclined to do? If we replace making a lot of money with something else, what will their motive be? How do we locate ourselves when earning several million pounds a year by the time we are 30 is no longer the be all and end all? This subject will require a great deal of thought and examination over the years ahead, and I hope that it will be debated in the Committee stage, which I very much hope that we will have in the weeks ahead.
	For some years I have been lucky enough to be on the council of Sussex University. I was on it for nine years and moved off it last July. Sussex University was founded in 1964 and aims to have 50 per cent of its students studying the sciences and 50 per cent the arts. Asa Briggs was the first important vice-chancellor there. He was very strong in the arts and a very good friend of mine. However, in the nine years during which I served on the council, I noticed that fewer and fewer students wanted to study science. They wanted to study the arts, which cover a large number of subjects including economics, because they thought that that would enable them to get a very good job, paying a lot of money, soon after leaving university. Indeed, some noble Lords may remember that about two or three years ago Sussex University had to merge its chemistry and biology departments into one, which caused a great deal of trouble, simply because we were not getting a sufficient number of students who wanted to study the sciences.
	The other day I was talking to our new vice-chancellor, Professor Michael Farthing. He told me that he is already seeing a change at the university and that the interest shown by potential students in applying for some of the very high-level scientific degrees, which are well beyond my understanding, is much greater than it has been for many years. I strongly welcome that. En passant, I give the Government credit for, and applaud, the measures in the Budget which will help wind energy schemes. I also applaud the very strict carbon targets that they are setting: a 22 per cent cut in emissions by 2012 and a 34 per cent cut by 2020. Those will be very hard targets to meet. But if the next generation, or the next two generations, are to change their attitude towards money and are no longer to consider it everything, they must still deal with climate change to stop our planet disappearing. Surely that is a marvellous target for the next generation to be considering and working on rather than going into banks or insurance companies.
	I should very much like to see the following two detailed points being taken up in Committee. I very much hope that the noble Lord, Lord Gavron, will come to the conclusion that if the top salary is a certain multiple—say, 50 times—of the low salary, there should be an extraordinary general meeting of shareholders. It seems to me that that should be the right next step—that it is not only in the annual report or the chairman's report, but it is actually thought about by the shareholders in an extraordinary general meeting.
	That brings up the question that has already been touched on. Most of the shareholders represent pension trusts; pension trusts hold the majority of the shares; and the directors of the pension trust, non-executive or executive, have often got the same interest in being highly rewarded as the chief executive whom they are examining. That is another problem that must be examined and thought through. To give more power to shareholders when the multiple between the lowest and the highest gets up to a high figure is at the heart of what should happen next. The Bill is a first, challenging step. It should not just be a figurative act. It should lead to very definite further action in the matter that is being discussed today.

Lord Haskel: My Lords, I, too, thank my noble friend for and congratulate him on introducing the Bill. I thank him for all his hard work in taking a Bill through your Lordships' House. I congratulate him on his timely and important initiative.
	I support the Bill, and I would not be surprised if Richard Lambert, the director-general of the CBI, also supported it. At a dinner on 2 April, he spoke about how business and industry must work hard to regain public support and that a part of this task was the need to curb excess. The figures quoted by other noble Lords and the ratios given by my noble friend are surely signs of this excess. The noble Lord, Lord Tugendhat, listed the excessive abuses by directors of companies for their private gain. Much of this abuse is cynically carried out in the name of shareholder value.
	Noble Lords will remember that when we debated the Companies Act 2006, we were very concerned about this and about the narrow definition of shareholder value. We were anxious that directors should be obliged to act equitably between all company stakeholders. Indeed, directors are encouraged to report on this in the business review required in Section 417. There is absolutely nothing to stop companies voluntarily putting this ratio in their annual report; indeed, the Companies Act 2006 encourages it. I am sure that some noble Lords will point this out and perhaps, with a few words about unnecessary red tape, will conclude that the Bill is unnecessary. In normal times, they could be right, but these are not normal times. These are times of crisis, and crises demand change. As Mr Lambert reminded us, part of this crisis is excess, and part of that excess is excessive pay.
	Quite rightly, my noble friend in his Bill wants to be part of this change. This change is all around us. The Government themselves are speaking of a new era of caring capitalism, as are the Opposition. What common economic and business values were subscribed to by the world leaders at the G20 conference in London? They were fairness and integrity—the fairness looked for by my noble friend Lord Puttnam's dad.
	What does this mean? It means that business has to move away from a code of conduct towards a code of ethics. It means moving from the strict letter of the law to the spirit of the law—moves which are perhaps both subtle and confusing. In these circumstances, Governments have to provide signposts, showing the way from what is excessive to what is proportionate and showing the way to what is fair. Unless these signposts are provided, all these fine ideas will just remain as words and rhetoric unmatched by action. That is why, at this time of crisis, a nudge and a wink are not sufficient. We need my noble friend's Bill. It may not deal with the whole issue of integrity, but it points the way. It is a small signpost indicating what is fair, what is right and what is proportionate. It is an indicator of the right balance between effort and reward. The public are in the mood for this.
	It may well be that the Minister and opponents of this Bill are concerned that all this talk about proportionality and fairness may inhibit the freewheeling market that brings us the innovation, the enterprise, the new products and services and the technological advances which expand our economy and raise our standard of living. I can put noble Lords' minds to rest. Of course, you can always cherry-pick to prove that freewheeling capitalism has created economic value which benefits us all. But as we have seen the rise in the ratio of pay, so we have seen a rise in the creation of paper wealth, the kind of wealth that my noble friend Lord Gavron spoke of. It is wealth created by playing the markets, instead of a real rise in wealth by solving the world's problems.
	Research over the past 15 years demonstrates that innovation and progress are not just a matter of pay. The noble Lord, Lord Taverne, gave us the details. He explained that it is also a matter of the culture of work and of having good and serviceable institutions in place, which enable people's aspirations, expectations and discretion to be used. My noble friend Lord Giddens told us that these things are carefully studied. Since the mid-1990s, we have witnessed in Britain the paradox of a rising pay ratio matched by declining employee discretion to be innovative—to take financial risks, yes, but to be truly innovative, no.
	That brings me to corporate governance, which will have to be improved. My noble friend's Bill helps with this by getting away from some of the box-ticking on pay. The Bill is an institutional reminder that workers and shareholders can put questions relating to the salary of directors on to the agenda, not only at shareholders' meetings but at workplace meetings. There should be a signpost in the company's annual report, which is perhaps symbolic, but nevertheless is an indicator of fairness within the company.
	I support the Bill, because the time is right. It reflects the current mood of the public and of business to curb excess. The direction is right, because it points towards a more caring and innovative economy—the kind of economy that the Government are speaking about and that reflects Labour's values. The Bill is modest and proportionate. It is a small step towards the fairness subscribed to by the G20. It improves corporate governance. My noble friend's Bill is the direction in which we have to travel.

Lord Goodhart: My Lords, I am very pleased that the noble Lord, Lord Gavron, has introduced this Bill and I welcome the support given to it by the noble Lord, Lord Tugendhat, and my noble friend Lord Taverne. I am glad that successful arm-twisting has produced a surprising number of Members of your Lordships' House, including myself, who have turned up on a glorious Friday morning. I agree with the noble Lord, Lord Haskel, that the matters covered by the Bill are one aspect of the wider subject of corporate governance, and I want to talk about that as a whole rather than just about the aspect of it covered by the Bill.
	The failures of corporate governance are at the root of many of the financial problems we face. One of the few good things about this crisis is that it will encourage a rethink of corporate governance as a whole. A lot of work is being done on this already by, for example, the Harvard Law School, which has a very effective corporate governance programme, some of the products of which I read in an e-mail that I received yesterday.
	Corporations are of course at the centre of the economy. A vital element of corporate governance is the concept of the duty of those who manage the corporation. Those who run it should be recognised as owing duties to three main groups. The first is the shareholders. The managers have a duty to run their business efficiently and to protect the interest in it of the shareholders. Some businesses may be high risk; that is perfectly legitimate, provided that the shareholders are aware of and accept this. The second group to whom a duty is owed is the employees. There is a duty to pay them fairly, to provide good working conditions and to keep them in employment as far as reasonably possible. The third group is the customers. The duty is to provide goods or services which meet the standards promised by the corporation or required by law, and to abstain from cartels or monopolies which force up prices and reduce competition. There are other groups to which corporate duties are owed, such as creditors who must be paid, or the general public, who may be threatened by, for example, pollution.
	The evil at which this Bill is directed is the overpayment of directors and senior staff. This arises because, as many noble Lords have said, the fixing of salaries and bonuses is usually in the hands of people who have little or no interest in limiting them. This damages the first group, the shareholders, including pension funds and insurance companies, because money is being removed which should go into dividends or reinvestment. In some cases the overpayment of directors and staff, particularly if the bonus system encourages risk-taking, may inflict damage which not only hits the shareholders but leads to cuts in employment.
	Other breaches of duty have also played an important part. For example, the granting of mortgages by banks to those who cannot afford them is a breach of the duty to the customers by persuading them to take on obligations that they cannot meet. It is also a breach of duty to the shareholders by endangering their assets. It is a breach of duty to the depositors of a bank, who are creditors, by putting their repayments at risk. As the noble Lord, Lord Tugendhat, said, perhaps the worst case of this misinvestment was the collapse of Lehman Brothers, a corporation which is of some interest to me, as I am the great-grandson of one of the original brothers, although I have no financial interest in it.
	This Bill, if enacted, would be a fairly small but distinct step in the right direction. It is a step towards transparency, which is part of the answer, but we need much more than transparency. We need a full study of corporate governance. Royal Commissions are out of favour but we need, if not a Royal Commission, at least a high-powered committee to report to Parliament on how we can improve corporate governance in the United Kingdom and prevent future repeats of the events at Northern Rock or the Royal Bank of Scotland. We also need a Government who are willing to accept that report.
	We need to consider whether and how far existing legally enforceable duties of directors and other managers in the field of corporate governance can be extended.

Lord Kalms: My Lords, the Bill of the noble Lord, Lord Gavron, deeply intrigued me, as we both come from a very similar commercial background. You might say that we were a couple of old-time entrepreneurs. We were both beneficiaries of a buoyant market economy and created substantial commercial and profitable businesses, which, without being immodest, were I believe of high reputation. In due course, we both retired, having created substantial shareholders' and personal reward.
	Throughout that time, however, as much as one might be aware that a market economy has flaws, as indeed do all human endeavours, you could talk about and practise ethical values and social responsibilities without being looked upon as a wild idealist or a stranger from another planet. There were many traditional restraints that ensured a high quality of management philosophy enjoined with a prime and meaningful responsibility towards employees, customers and shareholders.
	There were also at that time, and it cannot be denied, the discernible roots of untrammelled ambitions and unbridled greed. It was perhaps to our discredit that we concentrated more on the shareholder benefits and profitability of the market economy and less upon the smouldering and unlimited ambitions of some in our own markets and particularly in some of the new overseas markets.
	Noble Lords know the rest of that story, given the explosion, or, rather, the implosion, of the past two years. It was sudden, but it did not happen overnight. We saw it grow like a cancer over many years. For those of us out of the game it was distasteful, but undeniably profitable to the then current players. We were inexcusably innocent; we had perhaps some vague sense that sufficient regulation and values were in place to prevent serious abuse—regulation that for me was never a serious concern in my time, which I flatter myself to think, was because we never went near to breaching any standards. In fact in my own 50-odd years of being in business—when I retired it was a large company with more than 35,000 employees—the only applicable regulation that I can recollect involved a couple of inquiries by the Monopolies Commission, which was concerned with our market share; but we were cleared. Exceptions apart, there was an understanding of growing social responsibility.
	I turn now to the Bill presented by the noble Lord, Lord Gavron. It contains an interesting concept, albeit I have two reservations. The first is that the information it would produce could be confusing, because, regrettably, different companies cannot be collated on a like-for-like basis. The danger is clear, given the variations in the ratio because of the totally different nature of businesses where they operate from different countries, the different industries in which they trade, where the companies make their profits and, not unreasonably, a different basis of cost and reward. This makes comparison invidious and it therefore has less meaning. After a time, this type of information could easily be brushed aside with well constructed rejection by an articulate chairman. Nevertheless, I do not reject the direction of the Bill.
	However, the second reason for my reservation is in fact more fundamental. It is quite clear that the wild abuses of the market economy have to be dealt with in a thorough, complete and overall programme. What we must not fall for is tampering with the present construction. We have seen greed and irresponsible management at an unprecedented level—in many cases, in my opinion, well into the level of criminality. We must not approach that history with a sticking plaster any more than we should approach it with a sledgehammer. The market economy is flawed but it is the best system known to man to enable him to exploit his talents and his natural ambition to grow for himself, his family and those who hitch their wagon to his star. The positive side of the market economy needs to be identified and protected. Thus, we need to debate as soon as possible how we are going to run the business community in the years to come. Of course, regulation will play a major part, and no doubt there will be endless debate about the quality and depth of that regulation.
	As an amusing aside, it occurred to me that many of the excesses of the market could have been stopped if we had given the department of trading standards unlimited fining powers. That might have quickly identified the companies which were selling products not fit for purpose and which caused us all such deep pain. I make that point because it indicates that regulation does exist but it is often contradictory and without sufficient powerful enforcement. Indeed, the best brains often preferred to be where the bucks were, and that was not the regulation side of business. That must be addressed.
	However, the one area that we have to consider concerns not regulation but the level above regulation. It is about motivation and restoring the ethnical values of management. It is easy to dismiss that argument as ephemeral ambition but, in truth, there are many societies and industries that still value ethical behaviour, which needs to sit alongside a powerfully constructed duty of care by management—an all-embracing, all-inclusive, watertight duty of care; a duty of care to society. I think that the noble Lord, Lord Goodhart, was moving in that direction within his speech. It is an ethical attitude that would frown at the absurdity of the obscene top-slicing of profits by those who, for a short time, have been given unprecedented powers.
	In this Chamber, I need not camouflage or try to disguise the culprits. In many cases, they were the heads of industry, and none more so than the banking industry. There were companies where getting to the board automatically meant trousering—excuse that horrible expression but it is true—£100 million or more, and sometimes a lot more. If the head of a company is greedy, it feeds the ambitions of greed throughout the body corporate.
	Great wealth can be created by perfectly honourable means. It can be created by genius or sweat and tears, and we should not begrudge Bill Gates his super-fortune. However, it cannot be created by sharp practice, selling inferior products or exploitation, and it is here that the ethical values have to be sharpened and defined.
	The time has come for us to debate in depth and discuss in the late hours the methodology of future control, and I hope that ethics will be a constructive part of that debate. I would go further, such as the idea put forward by the noble Lord, Lord Gavron, of exposing disparity of salary. I would introduce an ethical audit, which would not be merely the ticking of boxes. One can be sure that we can be more sophisticated in our demands. Such an audit would make every director, both executive and non-executive, and every decision-maker at every level aware that in our society we must both set ethical standards and accept social responsibilities. The penalty for failure would be uncomfortable, embarrassing and expensive. These ingredients have been woefully lacking—sometimes totally lacking—over the past few years. However, we should be aware that there are those who define ethics as an unquantifiable methodology.
	Perhaps I may be allowed one further anecdote. Some years ago, I offered a leading London university, with a strong economic speciality, funds to set up a chair in ethics. Alas, this was quickly rejected. The explanation was that there is no role for ethics in economics. Economics, it was explained, is a science. I wonder whether those concerned feel in any way responsible for today's débâcle.
	It is not appropriate in this debate to apportion specific blame. After all, we are referring to a flaw in the constitution of man's motivation. Nevertheless, there is a finger pointing at government for being so subsumed with enthusiasm as to have neglected their natural role of responsibility, which is to be self-critical, to sense the extremes that can invade and destroy society and to sense when they have failed to take action rather than encourage.
	So, when we get round to the new plan A, we must study all the permutations and all the possibilities. If that means that the market economy is not a free ride for greed, nor a substitute for unlimited exploitation, we will have started to construct a far better model.

Lord Wedderburn of Charlton: My Lords, I, too, congratulate my noble friend Lord Gavron on introducing what is, in fact, a very modest Bill concerned with disclosure and transparency.
	He has been confronted in the debate from many parts of the House with problems that the Bill does not attempt to deal with. They range from the problem of the ambitions of university students to general problems of regulation and corporate governance, which lie behind what has been discussed in the Bill. I hope that your Lordships can come back to the very modest proposal for transparency in a particular matter—that is, to provide figures which are, as noble Lords have suggested, astonishing and still not very well known. When I came to write on company law reform in 2003, I was amazed to find figures relating to the advance of remuneration. They included all the benefits acquired by top corporate executives, which, as the noble Lord, Lord Taverne, mentioned, have been expanding at a massive rate. Since about 2000, they have taken off and have created a massive gap with other benefits, both in the world of companies and generally in society, and that has contributed to the inequality which has increased in our society with the disadvantages that noble Lords have mentioned. This modest disclosure of figures could, as the noble Lord, Lord Kalms, has suggested, be misrepresented by people. Figures can always be misrepresented. That is no criticism of the Bill. Many points which have been made on this Bill, and on another this morning, are matters for Committee stage, when the Bill gets there, as I am sure it will.
	The rent, as most researchers in the United States describe it, taken from corporate assets by top executives has increased at the alarming rates mentioned by the noble Lord, Lord Giddens. When I first began teaching and researching corporate matters at the University of Cambridge, I was very glad to continue it at the London School of Economics where I felt released from what I called the old-fashioned vision of company law which was all about the relationships of shareholders, creditors and managers and all sorts of theories based on those facets. As the noble Lord, Lord Haskel, has mentioned, the discussions on the Companies Bill 2006 and subsequent discussions raised the issue of a wider set of stakeholders who had to be taken into account. We made some progress.
	Noble Lords will remember that in Section 172 we managed, after a rather massive and long-winded set of researches set up by a government committee, to have the interests of directors described as promoting the success of the company primarily for the benefit of the shareholders as a whole; as having regard, among other matters, to the interests of the company's employees and to relations with suppliers, customers and others; and as having regard to the impact of the company's operations on the community as a whole. My noble friend Lord Gavron's Bill addresses that latter part of directors' duties because, of course, there is a relationship between the community as a whole and top remuneration, including incentive schemes and other additions to salary which are very important to top directors. The gap between them and the lowest paid among those who are contracted to a company one way or another, as employees or as other forms of contract labour, as noble Lords have pointed out, would need to be defined further in Committee.
	This remarkable rise in top executive pay has been a feature of the emergence of financial capitalism in its present form and, of course, it was part of the picture which gave way to weakness, to put it mildly, in the relationship of the risk of executives and the risk of companies in the financial services sector. The Bill will not cure all those matters and various speeches which have been made about corporate governance are no criticism of the Bill. It is not meant to solve all the problems of regulation, corporate governance and the like. It may well be that further amendment of the Companies Act is required as regards the best corporate governance picture that the law should put before those concerned with our corporations.
	In the light of those factors, to require that companies produce the figures of top payments to top directors and executives and to produce the wage structure of the corporate enterprise, at any rate as regards the lowest paid 10 per cent, is not a very extreme measure. It would be a step in the right direction, as many noble Lords have said. It would have the effect of promoting a realisation that fairness is an important factor in our society and in our social fabric. It would also enhance those standards and qualities of which many noble Lords have already spoken and to which I give my general agreement. In that sense, it is a Bill based on an ethical structure, which the noble Lord, Lord Kalms, is interested in and which I also hope receives his support. I hope that the Bill will continue to Committee stage, that the Government will look on it with favour and that they will give some time to its progress.

Lord Donoughue: My Lords, I, too, wish to speak in support of the excellent Bill introduced by my noble friend Lord Gavron, on which I congratulate him. I should declare—there was a time in the Labour Party when it was almost dangerous to admit it—that I worked in the City. I was a member of the old Stock Exchange, a partner in a leading stockbrokers and a director of a merchant bank. That experience was once not very common on this side of the House, but I am delighted to see more noble Lords with that background on our Front Bench. They have a much more distinguished record than I do.
	Many of the excesses of greed in recent years in the City—I know that the Bill refers to more than the City, but the City is at the heart of it—were unthinkable when I was there before the big bang. In my firm, the ratio between rewards for senior partners and directors and the average ones for ordinary foot soldier employees was reasonable. It was a responsible ratio, probably in the high single figures, as in our Armed Forces, which my noble friend mentioned. Today, it can be obscenely in the hundreds.
	Much of the job satisfaction that I and others felt related to the quality of working life, something that has virtually disappeared from the modern City. It related to team spirit in the firm, where staff often worked for their whole lifetime. My stockbroking firm had one of the nicest and straightest bunch of colleagues that I have worked with—of course, I have a fairly wide and disreputable record, having been in journalism and academia as well as politics, so perhaps the competition was not strong—and, 23 years after the firm was taken over and dissolved, we still meet regularly for dinner. That would be unthinkable today where the only—certainly the main—motivation is money, and staff move regularly to the highest bidder.
	The effect of such huge pay differentials is bad, as several speakers have convincingly demonstrated. Institutionally, in the firms themselves, it alienates the low paid more than it motivates the highest paid. Socially, it creates too big a gap between the privileged at the top and the foot soldiers doing excellent work at the lower level. It gives the wrong signal socially and nationally to those in the public and social sectors who do great social work for small rewards. It creates the wrong values and priorities, with the view that only money matters and fairness does not. It is not good for social cohesion, as the noble Lord, Lord Taverne, convincingly argued. In the banking and financial sectors, it creates a casino atmosphere, except that it is worse than a casino because they are gambling with other people's money, not their own. It also entrenches short-termism. Executives earn huge sums in the short term and can retire after high-risk trading activities that enrich them in the short term but may bankrupt their firms in the longer term. I support the broad thrust of my noble friend's approach.
	I shall, briefly, ask the Government to consider other related corporate reforms that would produce what we want, which is more accountable and responsible behaviour from those at the top of our corporate sector. The reality today is that shareholders, the notional owners, can do little to hold senior directors and senior executives to account. This is true of individual shareholders, who are fragmented with no collective power, and of institutional shareholders, who do not wish to rock boats in case somebody else catches the habit and rocks their boat. Boards are virtually unaccountable to shareholders and in banking the top trading executives, especially the big traders, are virtually unaccountable to the boards.
	It is historically interesting that 150 years ago, the greatest flaw of capitalism—there were others, but this was the greatest—was the excessive exploitation of unorganised workers by the owners. The Labour Party and the trade unions came to power to stop that, and succeeded. By the mid-20th century, most employers did not excessively exploit their employees and, by my observation, were very responsible in their social attitudes to them. Today, the flaw in capitalism is quite different. It is that shareholders and low-paid employees are exploited by their senior executives and directors. The latter run remuneration schemes that take an excessive share of the corporate cake—the croupier's take, as my noble friend and others have referred to it—often regardless of management performance, and leave too little for shareholders and ordinary employees. The unacceptable and unaccountable power of boards and senior executives has made possible the excessive and growing differentials of pay in the corporate sector, which my noble friend Lord Gavron addresses.
	In this context, I briefly suggest three extra reforms. The Government should consider legislation on the conduct of annual general meetings, especially in relation to remuneration, mentioned convincingly by the noble Lord, Lord Tugendhat. I suggest that AGM votes on remuneration committee reports be made binding; currently, they can be ignored. There should be separate AGM votes on bonuses. You will recall that Sir Fred Goodwin of the Royal Bank of Scotland only a year ago was granted a bonus of £2.9 million on top of a salary of £1.3 million, clearly as a reward for bringing the bank to its knees. Bonuses should also not be annual but should be granted over a longer period, when the value added by managerial contributions can be more fairly assessed and, again, they should be subject to binding AGM votes. Finally, share incentive schemes are usually paid within three years. That is too short. A longer period of five to seven years would be more appropriate to assess the value of the contribution, again subject to binding votes. Those additional suggestions would strengthen the excellent approach of my noble friend Lord Gavron in the Bill.
	In concluding, I should stress that I support the free market economy. I do not want Governments to set individual pay. We went through that in the 1970s—some of us were painfully associated with it. It simply does not work. I do not want to stifle genuine commercial creativity. The free market that I support should be conducted responsibly. It is not a value-free economy. It is not a jungle where the top snouts in the trough take excessive rewards out of all proportion to their contributions or those of others, the poorly paid below them. Still supporting a free market, the Government can give a steer towards a better balance of rewards between those at the top and those at the bottom and towards making top executives and directors more accountable to the shareholders who, notionally, are the owners. Those steps would strengthen the market economy and make it more acceptable to the wider community, which is currently shocked by what has taken place. The Minister understands these issues better than me and better than most. I trust that he will ignore much of the negative wording in the winding-up speech that his officials have given him and give a sympathetic response to this debate.

Lord De Mauley: My Lords, I thank the noble Lord, Lord Gavron, for the work he has put into producing this Bill and for raising the subject today. As my noble friend Lord Kalms said, he has a great deal of experience, among other things as head of substantial companies. I am sure that he will have discussed this with colleagues and former colleagues, and what he has to say is important.
	We on these Benches—the tone of the speeches from each of my noble friends today has demonstrated this—share a mixture of anger and frustration at an incentive culture that has undoubtedly been a major contributor to the downfall of some of our major banks and financial institutions and has had such a severe knock-on effect on the wider economy. Like other noble Lords, I was proud to work in the City of London, which I was lucky enough to do from the late 1970s to the early 1990s, and it angers me to see what has now happened. We have strongly supported remuneration transparency both in the new Companies Act and in secondary legislation, not least the requirement for a remuneration report in companies' accounts. We recognise and encourage the current corporate governance reviews, which look not so much at specific salaries, but at the processes by which boards decide levels of remuneration.
	The Financial Services Authority is consulting on a new code of practice on remuneration policies for the firms that it regulates. It will include calculation policies for bonus pools, non-financial performance grounds, assessing performance on longer-term criteria than purely on the current year, and so on. The noble Lord, Lord Donoughue, just referred to this. The various institutional shareholder organisations are also reviewing their codes. A key issue is whether the non-executive system works adequately and how it can be improved. Several noble Lords have spoken of this, including the noble Lords, Lord Haskel and Lord Goodhart, who both referred to corporate governance. The Financial Reporting Council has started consultation on the effectiveness of the combined code on corporate governance which sets out standards of good practice on issues such as board composition and development, remuneration, accountability and audit, and relations with shareholders. All companies incorporated in the United Kingdom and listed on the Stock Exchange are required to disclose in their annual report and accounts how they have applied the combined code. We continue to support the combined code and we encourage shareholders to take a more active interest in their companies.
	The financial community is doing its best to respond to the problems we are addressing today in a measured and timely way that compares favourably with the Government's approach in their panicked management of the economy. The noble Lord, Lord Gavron, will therefore understand our reservations about this Bill. We are just a little wary of regulatory proposals that might damage the country's reputation as a financial centre and discourage bright people with high potential from working here, thus helping to bring us out of the recession. My noble friend Lord Renton spoke about bright young people from a different perspective, and his point is well taken.
	Unjustified extremes of inequality are unhealthy. The noble Lord, Lord Puttnam, emphasised the word "unfairness". I mentioned a moment ago that we have some reservations about the Bill, and I will be specific. The Bill encourages a presumption that a high ratio, as calculated under the disclosure that it would require, is undesirable. The reality is that a sales or managing director who has saved his or her company, preserved jobs and enriched thousands of pensioners whose schemes hold the shares, may thoroughly deserve a substantial pay packet. My noble friend Lord Tugendhat acknowledged this.
	One of several potential unintended consequences of the Bill is that the figure it would require companies to produce might draw attention to the fact that in some cases it would be cheaper to outsource the lowest 10 per cent of the workforce, for example to India. This would hardly be in the interests of those it was trying to help.
	The Bill raises some technical issues, such as creating reporting and compliance red tape costs. While these may be modest for large firms, some smaller businesses nevertheless are publicly quoted and so, because the Bill includes them, would be subjected to additional time and cost burdens at a point when they are really struggling with much more immediate problems. The exact definition of pay promises some complexity and money for lawyers and, in particular—I should know because I qualified as one many years ago—for accountants.
	As the noble Lord, Lord Bradshaw, pointed out, a company which outsources its most basic functions, such as the cleaning of premises, to a subcontractor would probably have a smaller gap between highest and lowest paid employees than another, otherwise identical one that does those jobs in-house, even though there may be no intrinsic difference in the fairness of the pay policies of the two companies. My noble friend Lord Kalms referred to the difficulties of comparing between different companies. This is only one example of such problems of comparison.
	It is perhaps worth mentioning that the prominence that the Bill would give to the ratio concerned, which it would require to appear on the first page of the first part of the annual report in bold type, would be greater than that given to all the other information in an annual report, such as information about profitability, solvency, taxes paid and so on. Even people less analytically critical than I am might raise an eyebrow at that.
	We look forward to hearing from the Minister, who has a particularly interesting and important personal perspective which he can bring to this debate if he is prepared to do so. He was chairman of a company, for which I was proud to work, which falls fair and square into the provisions of this Bill. It employs people all around the world, many in countries where wages and salaries are among the lowest in the world—for example, Bangladesh. There must be an argument that the cost of living in such countries is lower than in some others. This Bill would cover the worldwide workforce. It will be interesting to see whether he thinks that it would be appropriate to highlight the comparison of the salary which he had to pay to retain the most valuable member of his staff in his highest cost financial centre against those of the lowest 10 per cent. He may of course do so.
	The noble Lord, Lord Gavron, has raised an important matter and I thank him for that. Just because we have reservations does not mean that we should not all consider carefully the transparency of information of this kind and how to encourage shareholders to take a more active interest in their companies.

Lord Davies of Abersoch: My Lords, on behalf of Her Majesty's Government, I thank my noble friend Lord Gavron for explaining the background and the purpose of his Bill. In reply to my noble friend Lord Donoughue—the only career I think he has not done is estate agency—there is very little negative comment from my officials in what I am about to say. Over the past few months, unsurprisingly, in the US and Europe we have seen a good deal of debate about remuneration. There are some underlying principles on which everyone seems to agree. We should not pay for failure. We should pay for performance. We need to ensure that every employee is paid properly for their role. We must have equality, as the noble Lord, Lord Taverne, highlighted. We also need to ensure that there are the proper processes around remuneration at the board table and the proper processes between boards and the owners of the company where the company is publicly quoted.
	We also need to ensure that remuneration is fully transparent. As my noble friend Lord Puttnam said, we must be fair. This does not mean that individuals should not get fully rewarded for high performance and adding real value to the business. We must not restrict the UK's ability to attract and retain bright, high-quality people. We must also not create an anti-business and anti-success culture within the UK. Having sat on two major public company boards and on the remuneration committees, it is clear to me that there has been much improvement in some areas of their policies. But it is also clear from the recent examples in the corporate world that some areas need improvement. From my own experience, a high degree of independence and a huge amount of work goes into running a remuneration committee.
	In his question about my previous employer, the noble Lord, Lord De Mauley, made reference to the company we both worked for having business in 70 markets with different wage structures. That is quite a challenge when we come to the disclosures and the ratios mentioned in the Bill.
	It is worth reminding the House of the action which the Government have taken over a number of years to improve the transparency of directors' remuneration, the accountability to shareholders and, ultimately, the ability of shareholders to consider the link between pay and the performance of the directors. In 2002, the Government introduced the Directors' Remuneration Report Regulations. This followed a decade of important contributions to the state of corporate governance in the UK: the Cadbury report in 1992, the Greenbury report in 1995 and the Hamper report in 1999. Following detailed consultation, the Government introduced regulations which required quoted companies to publish a report on directors' remuneration as part of their annual reporting cycles and to offer shareholders a vote on that report. I shall not repeat what quoted companies are required to publish in their annual accounts; suffice it to say that they are required to table a resolution at each AGM on the remuneration report.
	Additionally, regulations made under the Companies Act 2006 have introduced a new provision which came into force for financial years beginning on or after 6 April this year that requires quoted companies to report on how pay and employment conditions of all employees were taken into account in determining directors' pay. The Government will be paying close attention to the response to this new requirement and considering how companies use it to improve disclosure in this area.
	Given recent events, there is now a much wider, active debate on the following areas, some of which have been mentioned today. How can we stop shareholders driving short-term performance in corporates and showing little interest in long-term value? How should companies handle remuneration when there is a significant change, which I found personally, working in the corporate world through the introduction of hedge funds, where the owners of the company may be owning the shares for a very brief period of time? How should remuneration committees be staffed? What is the role of an AGM, given that most large shareholders, the owners of the company and the hedge funds very rarely attend? As significant numbers of companies have moved away from options to performance shares, what is the right process for dialogue between the board, the remuneration committee and the shareholders? Should there be more detail published on the top 50, or even the top 100, executives and the top 50 or 100 highest-paid employees, who are very often different? How do we get more transparency without discouraging talent from seeking to be on the boards of top-performing UK listed public companies? How do we get the right knowledge, experience, pragmatism and professionalism on to the remuneration committees?
	Most boards have exercised a high degree of control; they have dealt with the issue of conflict of interest in a measured and professional way. Indeed, the debate has now moved into the wider issue of what is the right governance model, not just for banks but for other types of companies. What should chairmen, non-executives and others get paid? What is the right training and experience required for these individuals? Exactly what is the difference between a non-executive and an executive at the chairman level—something that I have personal experience of? How do we make sure that institutional shareholders in particular offer appropriate oversight, not only on a company's remuneration policies but more generally? That is something that my noble friend Lord Myners has been heavily engaged in.
	This debate needs to involve management boards, shareholders and a variety of associations, including the Association of British Insurers and the National Association of Pension Funds. The Government have commissioned an independent review under Sir David Walker looking at corporate governance in the financial services sector, but it is just as relevant for corporate UK. At the same time, the Financial Reporting Council, which oversees corporate governance in the UK, is also reviewing the combined code on corporate governance. These reviews will report in the autumn. The FSA, meanwhile, is consulting on a draft code of practice on remuneration policies for financial services.
	The banking industry's problems have revealed weaknesses in the balance between remuneration and shareholder value. Consequently, the whole area of disclosure and executive pay needs careful and considered evaluation, as the Government and the Financial Reporting Council recognise. To be clear: we have absolutely no problem with the principle of reporting as outlined in the Bill. Our signpost is that we will take up this cause. Our worry about the Bill is that it will distract from the wider issues that I have mentioned.
	The Bill is on a topical and important subject. I therefore thank my noble friend Lord Gavron for introducing it to this House, and other noble Lords for their contribution to what has been a fascinating discussion. I also congratulate my noble friend on achieving such a high-quality list of contributors.

Lord Gavron: My Lords, before I go any further, I offer an overall apology to everyone called Jones. I was brought up, like the Minister, in Wales, where we always used "Mr Jones", "Mrs Jones" or "Miss Jones" to indicate the person in the street—but always with great respect.
	I thank everyone who has participated in this debate and all those who have attended. I have been astonished—although I suppose I should not have been—by the high quality of the contributions and by how much I have learnt today on a subject I thought I already knew everything about. I certainly did not know everything about it. There were many important contributions from the beginning. I know it is Friday, there is sunshine and the garden is beckoning, but I would like to try to acknowledge some of the penetrating points that were made.
	I think the noble Lord, Lord Tugendhat, with his "Superman syndrome", has introduced a new phrase to management-speak. Very high earnings have led to that complex, and I am glad that he drew attention to it.
	The noble Lord, Lord Taverne, spoke eloquently and movingly about the disadvantages of inequality. My noble friend Lord Joffe coined the myth of the market in directors. My noble friend Lord Puttnam talked about his dad's concept of fairness, which drew accord from all of us. The noble Lord, Lord Bradshaw, asked an extremely relevant question about subcontractors, which was referred to again by the Minister. Of course the Bill will not cover everything. The noble Lord's point about subcontractors is a potential weakness in the Bill, which could be put right if its provisions are put into legislation at that stage.
	My noble friend Lord Giddens made a telling point when he said that there is no correlation between high rewards and high performance. The noble Lord, Lord Renton, who has become, in his maturity, an entrepreneur—much to my delight and admiration—talked about money not being everything. He also talked about the possibility of a special general meeting to consider any salary or earnings over 50 times more.
	My noble friend Lord Haskel, who was assigned as my mentor when I first came here and has kept a benevolent eye on me ever since, raised the concept of the signpost and was also the first person to mention ethics. The noble Lord, Lord Goodhart, who talked about the wider concepts of corporate governance, mentioned the word "duty", which I think should be in capital letters in every company office.
	The noble Lord, Lord Kalms, said that he did not agree with me totally, but actually, when I think about what he said, I believe that he did. He said that there are different sorts of businesses which cannot always be equally compared, and he is right. My noble friend Lord Wedderburn, who has already spoken eloquently on this subject, drove the nail a little further home.
	My noble friend Lord Donoughue started his speech with a very significant phrase—"team spirit". I know that he has played in teams and possibly continues to do so. Team spirit is an extremely important factor in companies and should influence some people more than it does.
	I have often admired the eloquence of the noble Lord, Lord De Mauley, even when he has a weak case. I find it difficult to disagree with anything he said. I agree totally that my proposed number should not be more prominent than the profits of the company. Having run a small plc, I do not agree that if my Bill became law, it would add any cost to small plcs, and having been a printer as well, I can tell the noble Lord that it is extremely cheap to operate.
	My noble friend Lord Davies said that he had very little criticism of my proposal. I stand amazed and full of admiration at his accomplished speech, made so soon after he was introduced into this House—by me, in fact. He seems to be a total natural. I certainly have no wish that he or any of his colleagues should be distracted by the Bill from their main objectives. I do not think that they would be.
	Finally, let me say, in all honesty, that nothing has been discussed in this debate of which I have not had some experience in one capacity or another. I am convinced that we have been debating aspects of our capitalist society which have gone wrong—badly wrong. If we do not right these wrongs, our society will suffer.
	I am a capitalist; I have always been a capitalist. I know of no better system than capitalism. But uncontrolled capitalism is far from perfect. There can be injustices; there can be abuses, which could threaten our future stability and prosperity. We must put these things right, and I hope that in today's debate we have taken a small step towards a saner, healthier and more just society.
	Bill read a second time and committed to a Committee of the whole House.

Law Commission Bill [HL]

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Second Reading

That the Bill be read a second time.
	 Moved By Lord Lloyd of Berwick

Lord Lloyd of Berwick: My Lords, the Law Commission, as I suspect most of your Lordships will know, was the brainchild of Lord Gardiner when he was Lord Chancellor. It has now been in existence for more than 40 years and has done much good work in the field of law reform. But to some extent it has been the victim of its own success. Many of its reports have had to wait far too long to be brought before Parliament. The Perpetuities and Accumulations Bill provides a good example. It was given its First Reading in this House on 1 April this year, but the royal commission report on which it was based was published as long ago as 1998—more than 10 years ago. I mention that Bill in particular—I could have mentioned other Law Commission proposals—because it will follow the new procedure devised to accelerate the progress of non-controversial Law Commission proposals through Parliament. It is therefore an important step forward. This Bill is another milestone on the same road.
	Clause 1 imposes the statutory duty on the Lord Chancellor to report annually to Parliament. He will give an account of Law Commission proposals that have been implemented during the year. Perhaps more important, he will also have to give an account of those proposals that have not been implemented and the reasons for any delay. This will enable Parliament for the first time to hold the Government to account in relation to the important subject of law reform. Clause 2 is perhaps less important, but nevertheless useful. It enables the Lord Chancellor and the Law Commission to agree a so-called protocol which will in future govern the relations between the Law Commission and Ministers in general.
	That, I think, is all I need say about what is in the Bill. In recommending it to your Lordships, I cannot do better than quote the words of the Lord Chancellor:
	"Good law is imperative for accessible and modern constitutional arrangements. For 40 years the Law Commission has played a vital role in that respect, but I intend to strengthen its role by placing a statutory duty on the Lord Chancellor to report annually to Parliament on the Government's intentions regarding outstanding Law Commission recommendations, and providing a statutory backing for the arrangements underpinning the way in which Government should work with the Law Commission".—[Official Report, Commons, 25/3/09; col. 23.]
	Those words were spoken when the Lord Chancellor was introducing the draft Constitutional Renewal Bill. It was not at all certain at what stage that draft Bill would come into law, so the chairman of the Law Commission, Sir Terence Etherton, had the idea that the short provisions relating to the Law Commission could be hived off from the Constitutional Reform Bill and the Lord Chancellor was very agreeable to that being done. Sir Terence Etherton in particular deserves great credit for all that he has done during his chairmanship of the Law Commission and, in particular, for bringing forward the possibility of this Bill. We now have before us this very short Bill, which might have been part of the Constitutional Reform Bill; it is now a stand-alone Bill, which I have had the honour to introduce and I hope will prove non-controversial. I beg to move.

Lord Goodhart: My Lords, I have very little to add to what the noble and learned Lord, Lord Lloyd of Berwick, has said. I have been an admirer of the Law Commission ever since it was set up in 1964, but it has been handicapped to a considerable extent over the years by the delays in giving effect to its recommendations, even when they have been accepted in principle by the Government. The present Government are taking some steps to help to overcome the problems of delays, and this Bill is one of those steps. It is plain from the circumstances that, although it is being nominally moved as a Private Member's Bill, it is supported by the Government and will therefore, no doubt, get through.
	Another very welcome step is the one proposing new procedures to deal with implementing reports, which it is hoped will take up less time in the House and will therefore enable more recommendations to be dealt with, because the problems of parliamentary time has always been acute. That is being tried out next week, with the Perpetuities and Accumulations Bill. I have to say that I probably know more about perpetuities and accumulations than any other Member of your Lordships' House, as I spend rather a long time in my practice dealing with trusts in which they play a fairly important part.
	I agree with all the tributes that the noble and learned Lord, Lord Lloyd, has paid to Sir Terence Etherton for his work. I would also add a tribute to the former Leader of the House, the noble Baroness, Lady Ashton of Upholland, for the considerable amount of work that she put into getting agreement on the new procedure.

Lord Kingsland: My Lords, I admire the Law Commission in so many different ways but, above all, I admire it for its stoicism. Over the years, since it came into existence in 1965, it has been tasked with many seemingly intractable problems, has grappled with them and produced a solution, only to find that solution spurned by the political classes. It is in that context above all that we can welcome this Bill.
	Clause 1 does two things. It introduces, first, a desirable element of certainty and, secondly, an ingredient of accountability. The certainty is there because the Lord Chancellor, from now on, will have to set out the Government's views about the likely implementation of Law Commission reports and drafts. That position will have to be taken publicly. The consequence of that is to introduce into our arrangements an element of accountability for the Law Commission's work by the Government that did not exist before. In effect, the Government have got to put up or shut up about Law Commission proposals. That will concentrate the minds of this and future Lord Chancellors.
	As far as the other substantive matter in the Bill is concerned, the question of the protocol, there is no obligation for that protocol to come into force. The word used in the Bill is "may", not "must". I hope that there will be a protocol, because I think that it will have the effect of creating a more intimate, if not necessarily a more harmonious, relationship between the Law Commission and Whitehall; and ought to lead to a better targeting of the work that the Law Commission does. In return, it would be reasonable for the Law Commission to expect that what it has done will be appreciated politically in the future in a way that it has not been in the past.

Lord Bach: My Lords, I congratulate the noble and learned Lord, Lord Lloyd of Berwick, on securing a slot for this Second Reading and for bringing forward this important matter.
	It is a great privilege for my department to be associated with the Law Commission. The commission, as has been said on all sides, makes a significant contribution to law reform, which is greatly valued by the Government, those in the legal and judicial world and beyond. For example, recently the Justice Secretary announced new proposals on the law against bribery that were drawn heavily from the Law Commission's work. As has already been referred to, the Perpetuities and Accumulations Bill, which I was privileged to introduce into the House at the beginning of April, again derived almost completely from the Law Commission. As the noble and learned Lord said, that Bill is to be dealt with by way of a new procedure in your Lordships' House, aimed at ensuring that more such Bills reach the statute book. Indeed, he was too modest to say that he has kindly agreed to chair the committee under the new procedure for that Bill. I look forward, as I know do other noble Lords who have spoken, to working with him, starting next week.
	We need to make sure that the valuable work from the Law Commission results in implementation. Noble Lords might be slightly surprised to hear that the most recent figures for Law Commission reports that have actually been implemented—and these figures are accurate from about two years ago—is around 70 per cent of Law Commission proposals. What that does not say is whether they are the most important or not so important parts of law that need to be changed. We need to improve on those figures and we want to ensure that Law Commission reports are implemented in a timely fashion. I confess—this is probably true of Governments of both colours—that this has not always been the case.
	I, too, would like to praise Sir Terence Etherton, the chairman of the Law Commission. I am sure that much more will be said about him nearer his retirement from that very important position, but he has been a force in bringing these matters to the attention of the House.
	I was going to give the same quote as did the noble and learned Lord, Lord Lloyd of Berwick. I will forgive him for using the quote; it is such good one. However, but the House will be relieved that I am not going to repeat it. Nor am I going to repeat the details set out by the noble and learned Lord' Bill in Clauses 1 and 2. I just say that these measure are key to delivering the Government's objective to strengthen the role of the Law Commission. We value the Law Commission's contribution to law reform. It was one of the finest legal reforms of the second part of the 20th century. In addition, we are very pleased to support the Bill.

Lord Lloyd of Berwick: My Lords, I am grateful for the support of the noble Lord, Lord Goodhart. He mentioned, incidentally, that he probably knows more about perpetuities and excess accumulations than anyone else in this House. As far as I am concerned, there is no contest.
	I also thank the noble Lord, Lord Kingsland, for his support, and others who have turned up to hear the debate on a beautiful, sunny afternoon. I suppose that those sitting on the government Front Bench had no option over whether to turn up or not, but they have turned up and I am grateful for the Government's support for the Bill.
	Bill read a second time and committed to a Committee of the Whole House.

House adjourned at 1.46 pm.